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LEASE AGREEMENT
Dated as of August 15, 1988
BETWEEN
McDonnell Douglas Finance Corporation
(Lessor)
AND
Chautauqua Airlines, Inc.
(Lessee)
Concerning
Two New Saab S-340A Airframes
Four General Electric Model CT7-5A2 Engines
Four Dowty Rotol Model (c)R354/4-123-F/13 Propellers
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0715G-1003G
0716G-1003G
8/04/88-JSW
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TABLE OF CONTENTS
<Table>
<Caption>
ARTICLE PAGE
1 Definitions 1-1
2 Delivery and Acceptance 2-1
3 Term 3-1
4 Rent 4-1
4.01. Basic Rent 4-1
4.02. Supplemental Rent 4-2
4.03. Place of Payment 4-2
4.04. Prohibition Against Setoff,
Counterclaim, Etc. 4-2
4.05. Waiver of Certain Rights of the Lessee 4-3
5 Representations and Warranties 5-1
5.01. No Representations and warranties 5-1
5.02. Lessee's Representations and Warranties 5-2
6 Possession, Use, Lawful Insured Operations,
Maintenance, Registration and Insignia 6-1
6.01. Possession 6-1
6.02. Assignment by Lessee 6-3
6.03. Use 6-3
6.04. Lawful Insured Operations 6-4
6.05. Maintenance 6-5
6.06. Registration and Insignia 6-6
6.07. Records 6-6
7 Inspection: Financial Information 7-1
8 Lessee's Covenants 8-1
8.01. Maintenance of Corporate Existence 8-1
8.02. Notice of Litigation, Etc. 8-1
8.03. Payment of Taxes 8-1
8.04. Consolidation, Merger or Sale 8-2
9 Replacement of Parts;
Alterations, Modifications and Additions 9-1
9.01. Replacement of Parts 9-1
9.02. Title to Replaced Parts 9-1
9.03. Alterations, Modifications and Additions 9-2
9.04. Title to Parts 9-3
9.05. No Liability for Alteration, Modification
or Addition; Grounding 9-4
</Table>
(i)
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<Table>
<Caption>
ARTICLE PAGE
10 General Tax Indemnity 10-1
10.01. Indemnity 10-1
10.02. After-Tax Nature of Indemnity 10-2
10.03. Contest 10-3
10.04 Survival 10-5
11 Damage. Destruction. Requisition
or condemnation 11-1
11.01. Event of Loss with Respect to an
Airframe or an Airframe and the
Engines Installed Thereon 11-1
11.02. With Respect to an Engine 11-2
11.03. Application of Payments from Governmental
Authorities for Requisition of Title 11-4
12 Insurance 12-1
12.01. Public Liability and Property Damage
Liability Insurance 12-1
12.02. Insurance Against Loss or Damage to
the Aircraft 12-2
12.03. Application of Proceeds in an Event
of Loss 12-5
12.04. Application of Proceeds in the Absence
of an Event of Loss 12-6
12.05. Reports, Etc. 12-6
12.06. Endorsements 12-7
12.07. Lessor's Additional Insurance 12-7
13 General Indemnification 13-1
14 Liens 14-1
15 Recordation and Further Assurances 15-1
16 Return of Aircraft and Records 16-1
16.01. Return 16-1
16.02. Equivalency Charge 16-3
16.03. Manuals 16-4
16.04. Maintenance at Lessor's Request 16-4
16.05. Engines 16-5
16,06. Storage 16-6
16.07. Special Markings 16-6
16.08. Survival 16-6
17 Events of Default 17-1
18 Remedies 18-1
</Table>
(ii)
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<Table>
<Caption>
ARTICLE PAGE
19. Miscellaneous 19-1
19.01. Construction and Applicable Law 19-1
19.02. Notices 19-2
19.03. Lessor's Right to Perform for Lessee 19-2
19.04. Counterparts 19-3
19.05. Quiet Enjoyment 19-3
19.06. Legal fees and Other Expanses 19-3
19,07. Assignment by Lessor 19-4
19.08. Survival 19-6
19.09. Successors and Assigns 19-6
20 Purchase option 20-1
21 Characterization as Lease and Tax Indemnity 21-1
21.01. Tax assumptions 21-2
21.02. Tax Indemnity 21-3
21.03. Contest 21.6
21.04. Survival 21-9
21.05. Consolidated Return 21-9
22 True Lease Under Federal Aviation Act 22-1
23 Truth In Leasing 23-1
EXHIBIT A - LEASE SUPPLEMENT NO.
EXHIBIT B1- STIPULATED LOSS VALUE
B2- STIPULATED LOSS VALUE
</Table>
(iii)
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LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") dated as of August 15, 1988, is between
McDonnell Douglas Finance Corporation, a Delaware corporation ("Lessor"), and
Chautauqua Airlines, Inc., a New York corporation ("Lessee").
WHEREAS, Lessee desires to lease from Lessor and Lessor is willing to lease
to Lessee the Aircraft described herein upon and subject to the terms of this
Lease;
NOW, THEREFORE, in consideration of the mutual promises herein, the Lessor
and the Lessee agree as follows:
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ARTICLE 1
DEFINITIONS
Unless the context otherwise requires the following terms shall have the
following meanings for all purposes of this Lease Agreement and shall he equally
applicable to both the singular and the plural forms of the terms herein
defined:
"AERONAUTICS AUTHORITY" shall mean, where applicable, the Department of
Transportation, the Federal Aviation Administration and/or the Administrator of
the Federal Aviation Administration ("FAA"), or any person, governmental
department, bureau, commission or agency succeeding to the functions of any of
the foregoing:
"AIRCRAFT" means each of the Airframes to be delivered and leased hereunder
together with the Engines initially installed on such Airframes when delivered
and leased hereunder or any Engine as defined herein, all as more particularly
described and identified in the Lease Supplements pertaining thereto.
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"AIRFRAME" means: (A) each of the new Saab SF340 aircraft designated in a
Lease Supplement (except the Engines and engines from time to time installed on
an Airframe), leased hereunder by the Lessor to the Lessee and having the
manufacturer's serial number and the Federal Aviation Authority registration
number as set forth in such Lease Supplement, and (B) except as otherwise
provided in Sections 9.02 and 9.04 hereof, any and all Parts so long as the same
shall be incorporated or installed in or attached to an Aircraft, or so long as
title thereto shall remain vested in the Lessor in accordance with the terms of
Article 9 hereof, after removal from an Aircraft.
"BASIC RENT" means the rent payable throughout the Base Lease Term for an
Aircraft pursuant to Section 4.01 and any other provision of this Lease which
treats any payment by the Lessee as Basic Rent.
"BUSINESS DAY" means any day other than a Saturday, Sunday or day on which
commercial banking institutions in Los Angeles, California are authorized by law
to be closed.
"CERTIFIED AIR CARRIER" shall mean an air carrier certificated under part
298 by the Aeronautics Authority or in the event such certification is no longer
issued to any air carrier, a domestic air carrier engaged in regularly scheduled
air transportation of passengers within the United States.
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"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMENCEMENT DATE" shall mean the Delivery Date.
"DEFAULT" shall mean any event or condition which with the lapse of time or
the giving of notice, or both, would constitute an Event of Default.
"DELIVERY DATE" for an Aircraft means the date of the Lease Supplement for
such Aircraft, which date shall be the date the Aircraft is delivered by the
Lessor and accepted by the Lessee, pursuant to the provisions of Article 2
hereof.
"ENGINE" means: (A) any of the engines together with the propellers
attached thereto listed by manufacturer's serial number in a Lease Supplement
and installed on the Airframe covered by such Lease Supplement on the Delivery
Date therefor whether or not from time to time thereafter installed on the
Airframe or installed on any other airframe or any other aircraft; (B) any spare
engine described and identified in any Lease Supplement, or any engine which may
from time to time be substituted, or be a replacement or addition pursuant to
Article 11 or 16 hereof, for any such Engine; and (C) except as otherwise
provided in sections 9.02 anti 9.04 hereof, any and all Parts (other than
Engines or engines) incorporate: or installed in or attached thereto or any and
all Parts removed therefrom so long as title thereto shall
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remain vested in the Lessor in accordance with the terms of Article 9 hereof
after removal from any such Engine.
"EQUIPMENT COST" or "Lessor's Cost" for an Item of Equipment means the
amount so described in the Lease Supplement for such Item of Equipment.
"EVENT OF DEFAULT" has the meaning specified in Article 17 hereof.
"EVENT OF LOSS" with respect to any Item of Equipment means any of the
following events with respect to such Item: (A) loss of such Item of Equipment
or the use thereof due to theft, disappearance for a period in excess of 30 days
(or such shorter period ending on the date on which an insurance settlement has
been reached on the basis of a total loss), destruction, damage beyond repair or
rendition of such Item permanently unfit for normal use for any reason
whatsoever; (B) any damage to such Item which results in an insurance settlement
with respect to such Item on the basis of a total loss; (C) the condemnation,
confiscation or seizure of, or requisition of title to, or requisition of use
(for a period in excess of 30 days) of, such Item by the Government of the
United States or any foreign government or any political subdivision of either;
or (D) as a result of any rule,
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regulation, order or other action by the Aeronautics Authority, or other
governmental body having jurisdiction, the use of such Item in the normal course
of air transportation of persons shall have been prohibited for a period of not
less than six months. An Event of Loss with respect to an Aircraft shall be
deemed to have occurred if an Event of Loss occurs with respect to the Airframe
which is part of such Aircraft.
"FEDERAL AVIATION ACT" shall mean the Federal Aviation Act of 1958, as
amended, as in effect on the date of this Lease, or any successor or substituted
legislation at the time in effect and applicable.
"INCENTIVE RATE" shall be equal to the Prime Rate plus 4%, or the maximum
rate permitted by applicable law, whichever is less.
"ITEMS OF EQUIPMENT" or "ITEMS" means any or all of the Aircraft, the
Airframes, the Engines, and each Part, as such terms are defined herein.
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"LEASE", "LEASE AGREEMENT", "THIS LEASE AGREEMENT", "THIS LEASE", "THIS
AGREEMENT" ",HEREIN", "HEREUNDER", "HEREBY" and other like words mean this
Lease, as it may be amended, modified or supplemented pursuant to the applicable
provisions hereof, including, without limitation, supplementation hereof by a
Lease Supplement entered into pursuant to the applicable provisions hereof.
"LEASE SUPPLEMENT" means a Lease Supplement, substantially in the form of
Exhibit A hereto, entered into between the Lessor and the Lessee for the purpose
of leasing the Items of Equipment under and pursuant to the terms of this Lease
Agreement. Each Lease Supplement shall he deemed to have been incorporated into
this Lease Agreement to the same extent as if such Provisions were fully set
forth herein.
"LIEN" means any mortgage, pledge, lien, charge, encumbrance, lease,
exercise of rights, security interest or claim.
"PARTS" means any and all appliances, parts, instruments, appurtenances,
accessories, furnishings, seats and other equipment of whatever nature (other
than Engines or engines), which (A) are from time to time incorporated or
installed in or attached to an Airframe or Engine, or (B) having been so
installed or attached, are later removed therefrom, so long as title thereto
remains
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vested in Lessor in accordance with Article 9 hereof after such removal from an
Airframe or Engine. "PART" means any one of the Parts.
"PRIME RATE" means the interest rate charged by The Chase Manhattan Bank
(National Association), or any successor thereto, from time to time at its
principal office in New York City on 90-day loans to responsible and substantial
commercial borrowers; with each change in such rate to take effect immediately
under this Lease and any calculations performed in accordance herewith.
"RENT" means Interim Rent, Basic Rent and Supplemental Rent, collectively.
"STIPULATED LOSS VALUE" for an Aircraft as of any particular date of
computation shall mean an amount determined by multiplying the Equipment Cost
for the Aircraft by the percentage specified in Exhibit 91 attached hereto for
purposes of Section 12.02 hereof and in connection with an Event of Loss, or
Exhibit B2 attached hereto for any other purpose, opposite the appropriate Basic
Rent installment for such date (PROVIDED, HOWEVER, that the Stipulated Loss
Value for an Event of Loss which occurs after payment of the final installment
of Basic Rent and before expiration of the storage period provided for in
Section 16.06 hereof shall be based upon the final amount set forth in Exhibit
B1), and the Stipulated Loss Value numbers in Exhibit B1 or B2 assume that all
prior Basic Rent installments have been timely made prior to such computation.
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"SUPPLEMENTAL RENT" means all amounts, liabilities and obligations (other
than Basic Rent) which the Lessee assumes or agrees to pay under this Lease or
related documents to the Lessor or others, including, without limitation, (A)
Stipulated Loss Value payments; (B) all amounts required to be paid by the
Lessee under the agreements, covenants and indemnities contained in this Lease;
and (C) any and all liabilities, obligations, losses, damages, penalties, taxes,
claims, actions, suits, costs, expenses or disbursements (including without
limitation legal fees and expenses) of any kind and nature whatsoever which may
be imposed upon or incurred by the Lessor by reason of the failure of the Lessee
to duly perform its obligations under this Lease.
"TERM" means the term for which an Aircraft is leased hereunder pursuant to
Article 3 hereof.
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ARTICLE 2
DELIVERY AND ACCEPTANCE
2.01 Lessor hereby agrees (subject to satisfaction of the conditions
hereinafter set forth) to lease to Lessee hereunder, and Lessee hereby agrees to
lease from Lessor hereunder, the Aircraft, as evidenced by the execution by
Lessor and Lessee of one or more appropriate Lease Supplements leasing the
Aircraft hereunder.
2.02 At all times during the Term of this Lease, full legal title to the
Aircraft shall remain vested in Lessor to the exclusion of Lessee,
notwithstanding the delivery of the Aircraft to, and the possession and use
thereof by, Lessee.
2.03 The Lessor hereby authorizes one or more persons designated by the
Lessee, who shall be an employee or employees of the Lessee, as the authorized
representative or representatives of the Lessor, to accept delivery of the
Aircraft. The Lessee hereby agrees that such acceptance of delivery of an
Aircraft by such authorized representative or representatives shall, without
further act, irrevocably constitute acceptance by the Lessee of such Aircraft
for all purposes of this Agreement.
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2.04 Lessor's obligation to lease the Aircraft to Lessee hereunder shall be
subject to satisfaction on or before the Commencement Date for each Aircraft of
each and all of the following conditions precedent:
(A) Lessor shall have received the following:
(1) resolutions of the Board of Directors of Lessee or other
written evidence of appropriate corporate action, certified by the
Secretary of the Lessee, duly authorizing the lease of the Aircraft
and the execution, delivery and performance of this Lease, together
with an incumbency certificate as to the person or persons authorized
to execute and deliver said documents on behalf of Lessee;
(2) a Lease Supplement, duly authorized and executed by Lessee,
covering the Aircraft, effective as of the Commencement Date;
(3) certificates signed by independent aircraft insurance brokers
as to the due compliance with the insurance provisions of Article 12
hereof with respect to the Aircraft;
(4) a favorable opinion of counsel for Lessee, dated the
Commencement Date, to the effect that:
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(a) Lessee has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of New York,
and has full corporate power and authority to carry on its business in
which it is presently engaged and to perform its obligations under the
Lease, as supplemented by the Lease Supplement;
(b) the execution and delivery of the Lease, the Lease
Supplement, the consummation by the Lessee of the transactions therein
contemplated and compliance by the Lessee with the terms and
provisions thereof do not and will not result in the violation of the
provisions of the articles of incorporation or the by-laws of the
Lessee as in effect on the date of such opinion; and to the knowledge
of such counsel, do not and will not conflict with or result in a
breach of any terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge, or
encumbrance upon, any property or assets of the Lessee under any
indenture, mortgage, or other agreement or instrument to which the
Lessee is a party or by which it or any of its properties are or may
be bound, or any existing applicable law, rule or
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regulation, or any judgment, order or decree then in effect, of any
government, governmental instrumentality or court having jurisdiction
over the Lessee or any of its activities or properties;
(c) the Lease and the Lease Supplement have each been duly
authorized, executed and delivered by the Lessee, and each such
instrument is a legal, valid, enforceable and binding obligation of
the Lessee, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other laws of general, application
affecting the enforcement of creditors' rights;
(d) except for any filing or recording that may be required under
the Federal Aviation Act (and except such other filings or recordings
as such counsel shall specify have been duly effected), no filing or
recording of any instrument or document (including the filing of any
financing statement) is necessary under the laws of the United States
or of the State of New York in order for the Lease to constitute a
valid and perfected lease of record relating to the Aircraft;
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(e) except as disclosed in the opinion, there are no suits or
proceedings pending or, to the knowledge of such counsel, threatened
against Lessee in any court or before any regulatory commission, board
or other administrative governmental agency against or affecting
Lessee, which if determined adversely to Lessee may have a material
adverse effect on the financial condition or business of Lessee;
(f) Lessee holds all licenses, certificates and permits from
applicable governmental authorities in the United States of America
necessary for the conduct of its business;
(g) no authorization, approval, consent, license or order of, or
registration with, or the giving of notice to the Aeronautics
Authority or any other regulatory body or authority is required for
the valid authorization, execution, delivery and performance by the
Lessee of the Lease, including the Lease Supplement, except for any
filings or recordings with the FAA; and
(h) such other matters as Lessor may reasonably request.
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(5) such other documents as Lessor may reasonably request, in
form and substance satisfactory to Lessor.
(B) On the Commencement Date the following statement shall be true and
Lessor shall have received a certificate satisfactory to Lessor signed by a
duly authorized officer of Lessee, dated the Commencement Date, stating
that:
(1) the representations and warranties contained in Section 5.02
hereof are true and accurate on and as of the Commencement Date as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date); and
(2) no Default or Event of Default has occurred and is
continuing, or would result from the lease of the Aircraft.
2.05. Concurrently with the delivery of an Aircraft, hereunder, Lessor and
Lessee will cause this Lease, if necessary, and a Lease Supplement substantially
in the form. of Exhibit A attached hereto, to be duly filed and recorded with
the Federal Aviation Administration at Lessee's expense.
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2.06. On the Delivery Date for each Aircraft, Lessee shall have provided
Lessor with a favorable oral opinion of Crowe & Dunlevy, special counsel for
Federal Aviation Administration matters, to the effect that upon the filing for
registration and recordation of this Lease and the Lease Supplement, the
Aircraft (including the Engines) will be free and clear of any mortgage, lease,
pledge, lien, charge or encumbrance of record except the Lease, and the Aircraft
will he owned as a matter of record solely by Lessor. Additionally, as soon as
reasonably practicable following the Delivery Date, Lessee shall provide Lessor
with a favorable written opinion of Crowe & Dunlevy, confirming the oral opinion
referred to above in all respects.
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ARTICLE 3
TERM
The Term for each Aircraft shall consist of the "Interim Term" and the
"Base Lease Term". The "Interim Term" shall be defined for an Aircraft as the
period commencing on the Delivery Date therefor as set forth in a Lease
Supplement and ending on September 30, 1988. The "Base Lease Term" for each
Aircraft shall commence on October 1, 1988 and shall continue for a period of 14
years, terminating on September 30, 2002.
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ARTICLE 4
RENT
4.01. (a) INTERIM RENT. The Lessee covenants and agrees to pay the Lessor
Interim Rent for each Aircraft throughout the Interim Term therefor in an amount
equal to $_________ for each day during the Interim Term, payable on October 1,
1988.
(b) BASIC RENT. The Lessee covenants and agrees to pay the Lessor
Basic Rent for each Aircraft throughout the Base Lease Term in [*], payable in
advance, for each Aircraft commencing for each Aircraft on October 1, 1988
and continuing to be payable on the first day of each month throughout the
Base Lease Term.
If any installment of Rent is due on a day other than a Business Day, such
installment shall be payable on the next succeeding Business Day.
4.02. SUPPLEMENTAL RENT. The Lessee also agrees to pay to the Lessor, or at
the Lessor's direction to whomsoever shall be entitled thereto, any and all
Supplemental Rent promptly as the same shall become due and owing, and in the
event of any failure on the part of the Lessee to pay any Supplemental Rent the
Lessor shall have all rights, powers and remedies provided for herein or by law
or equity as in the case of non-payment of Basic Rent. The Lessee will also pay
to Lessor, as Supplemental Rent, interest at the Incentive Rate (all
computations of interest under this Lease
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* Confidential
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to be made on the basis of a 365-day year) on any part of any installment of
Basic Rent not paid on the due date thereof for any period for which the same
shall be overdue and on any payment of Supplemental Rent not paid when due
hereunder for the period until the same shall be paid.
4.03. PLACE OF PAYMENT. All Rent payable by the Lessee to the Lessor under
this Lease shall be paid by wire transfer of immediately available funds
consisting of lawful currency of the United States of America, in such manner
that the Lessor receives the full amount of such payments on the due dates at
the location to be designated or such other location as the Lessor may
designate in writing to the Lessee.
4.04. PROHIBITION AGAINST SETOFF, COUNTERCLAIM, ETC. The Lessee's
obligation to pay all Rent payable hereunder shall be absolute and unconditional
and shall not be affected by any circumstances, including, without limitation:
(A) any setoff, counterclaim, recoupment, defense or other right which the
Lessee may have against the Lessor, the manufacturers of the Items or anyone
else for any reason whatsoever, (B) any defect in the title, airworthiness,
condition, design, operation or fitness for use of, or any damage to or loss or
destruction of, any Item of Equipment or any interruption or cessation in the
use or possession thereof by the Lessee for any reason whatsoever, (C) any
insolvency, bankruptcy reorganization or similar proceedings by or against the
Lessor or the Lessee, (D) any breach by the Lessor of any representation,
warranty or covenant of the Lessor
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made herein or in connection herewith, or (E) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing. If for any
reason whatsoever this Lease shall be terminated in whole or in part by
operation of law or otherwise except pursuant to specific provisions of this
Lease, Lessee nonetheless agrees to pay or cause to be paid to Lessor an amount
equal to each installment of Basic Rent at the time such payment would have
become due and payable in accordance with the terms hereof had this Lease not
been terminated in whole or in part.
4.05. WAIVER OF CERTAIN RIGHTS OF THE LESSEE. Except as expressly provided
hereunder, the Lessee hereby waives, to the extent permitted by applicable law,
all rights now or hereafter conferred upon it by statute or otherwise to
terminate or surrender this Lease or an Aircraft or any Part or to any
abatement, suspension, deferment, diminution or reduction of the Rent. Each
payment of Rent shall be absolutely final and net to the Lessor, so that this
Lease will yield to the Lessor the full amount of the installments of such Rent
throughout the Term without deduction.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.01. NO REPRESENTATIONS AND WARRANTIES. (A) AS BETWEEN LESSOR AND LESSEE,
THE LESSOR LEASES THE ITEMS OF EQUIPMENT HEREUNDER "AS-IS", "WHERE-IS" AND THE
LESSOR SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION, VALUE, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE OF THE AIRCRAFT, OR AS TO THE QUALITY Of THE
MATERIAL OR WORKMANSHIP OF THE AIRCRAFT OR ANY OTHER REPRESENTATION OR WARRANTY
WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT THERETO, and any risks with respect
thereto shall be assumed by the Lessee. So long as no Default or Event of
Default has occurred and is continuing the Lessor hereby authorizes the Lessee
to enforce in its own name such rights as the Lessor may have with respect to
any Item of Equipment under any warranty, service policy or product agreement of
the manufacturer thereof, the maintenance and overhaul agencies of the Aircraft
and the Engines, or any subcontractor or supplier or vendor thereof to the
extent that the same may be assigned or otherwise made available to the Lessee
and, to the extent that the same may not be so assigned or otherwise made
available to Lessee, Lessor agrees to exercise reasonable diligence at Lessee's
expense, to enforce such rights as Lessor may have with respect thereto for the
benefit of Lessee; provided, however, that upon
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a Default or any Event of Default all such rights shall immediately revert to
the Lessor including all claims thereunder whether or not perfected.
5.02. LESSEE'S REPRESENTATIONS AND WARRANTIES. The Lessee represents,
warrants and covenants that:
(A) the Lessee (i) is a corporation duly organized, validly existing and
in good standing under the laws of the, State of New York, (ii) has duly
qualified and is authorized to do business and is in good standing as a
foreign corporation in each jurisdiction where the character of its
properties or the nature of its activities (including the leasing and
operation of the Aircraft) make such qualification necessary, and (iii) has
the corporate power and authority to carry on its business as presently
conducted and to perform its obligations under this Lease;
(B) the Lessee holds all licenses, certificates, permits and franchises
from the appropriate agencies of the United States of America and/or all
other governmental authorities having jurisdiction, necessary to authorize
the Lessee to engage in air transport and to carry on its business as
presently conducted and to be conducted with the Aircraft;
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(C) the execution, delivery and performance of this Lease (have been duly
authorized by all necessary corporate action on the part of the Lessee, do
not require any shareholder approval, or approval or consent of any trustee
or holders of any indebtedness or obligations of the Lessee (except for
approval or consent previously obtained) and do not and will not contravene
any law, governmental rule, regulation or order binding on the Lessee or the
articles of incorporation or bylaws of the Lessee or contravene the
provisions of, or constitute a default under, or result in the creation of
any Lien (other than as permitted under this Lease) upon the property of the
Lessee under any indenture, mortgage, deed of trust, conditional sales
contract, bank loan or credit agreement, contract or other agreement to
which it may be a party or by which its property may he bound;
(D) neither the execution and delivery by the Lessee of this Lease
(including any Lease Supplements), nor the consummation of any of the
transactions by the Lessee contemplated hereby requires the consent or
approval of, the giving of notice to, or the registration with, or the taking
of any other action in respect of, any Aeronautics Authority, or any other
Federal or state governmental authority or agency, including any judicial
body or any other person, entity or corporation, except for the registration
and recordation of this Lease by the FAA;
(E) this Lease has been duly authorized, executed and delivered by the
Lessee and constitutes, and the Lease
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Supplements when entered into and delivered will constitute, valid,
enforceable and binding obligations of the Lessee in accordance with their
respective terms;
(F) except as disclosed in Lessee's opinion of counsel required by Section
2.04(A)(4), there are no suits or proceedings pending or, to the knowledge of
the Lessee, threatened against or affecting the Lessee in any court or before
any regulatory commission, board or other administrative governmental agency,
which if determined adversely to Lessee would have a material adverse effect
on the financial condition or business of the Lessee or the ability of the
Lessee to perform its obligations under this Lease;
(G) except for the filing for registration and recordation of this Lease
and the Lease Supplements with the FAA, no further filing or recording of
this Lease or any Lease Supplement or of any other document is necessary
under the Federal Aviation Act, or under the laws of any other jurisdiction
in order to fully protect, establish and perfect in all applicable
jurisdictions Lessor's title to, and Lessor's leasehold interest in, the
Aircraft as against Lessee and any third parties;
(H) for the purposes of Section 501 of the Federal Aviation Act, the
Lessee is a "citizen of the United States" as defined is Section 101 of the
Federal Aviation Act and the regulations pursuant to such Section.
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ARTICLE 6
POSSESSION, USE, LAWFUL INSURED OPERATIONS,
MAINTENANCE, REGISTRATION AND INSIGNIA
6.01. POSSESSION. The Lessee shall not sublease without the prior written
consent of Lessor, or otherwise in any manner deliver, relinquish or transfer
possession of any Item of Equipment; PROVIDED, however, that, so long as no
Default or Event of Default shall have occurred and be continuing and so long as
the Lessee shall comply with the provisions of Article 12 hereof, the Lessee may
deliver possession of an Item of Equipment for service, repair, maintenance or
overhaul work, or for alterations or modifications in or additions to an Item of
Equipment to the extent required or permitted by the terms hereof, and Lessee
may also:
(A) install an Engine on an airframe owned by or leased to the Lessee or
purchased by the Lessee subject to a conditional sale or other security
agreement, PROVIDED that such airframe is free and clear of all Liens except
the rights of the parties to the lease or conditional sale or other security
agreement covering such airframe; and PROVIDED FURTHER, that the Lessor shall
have received prior to such
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installation (1) a certificate signed by an authorized officer of the Lessee
to the effect that the lease or conditional sale or other security agreement
covering such airframe by its terms provides that neither such lessor nor
secured party nor its successor or assigns will acquire or may claim any
right, title or interest in any Engine by reason of such Engine being
installed on such airframe at any time while such Engine is subject to this
Lease.
(B) upon prior written notice to the Lessor, subject any Engine to normal
interchange or pooling agreements or arrangements, in each case customary in
the airline industry and entered into by the Lessee in the ordinary course of
its business with any Certified Air Carrier PROVIDED that (1) no such
agreement or arrangement contemplates or requires the transfer of title to
any Engine, and (2) if the Lessor's title to any such Engine shall be
divested under any such agreement or arrangement, such divestiture shall be
deemed to be an Event of Loss with respect to such Engine and the Lessee,
concurrently with such divestiture, shall comply with Article 11 in respect
thereof; PROVIDED, that the rights of any transferee who receives possession
by reason of a transfer permitted by this Section 6.01 (other than the
transfer of an Engine which is deemed an Event of Loss) shall be subject and
subordinate to all the terms of this Lease, including, without limitation,
the restrictions on the use of an Aircraft contained in Section 6.03 and the
Lessor's right to terminate
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this Lease upon an Event of Default and to obtain possession of the Engine
without regard to any such agreement, lease or sublease, and the Lessee shall
remain primarily liable hereunder for the performance of all of the terms of
this Lease to the same extent as if such transfer had not occurred. No
interchange agreement or other relinquishment of possession of any Engine
shall in any way discharge or diminish any of the Lessee's obligations to the
Lessor hereunder.
6.02. ASSIGNMENT BY LESSEE. Unless the Lessee fist obtains Lessor's prior
written consent, this Lease and all or any part of Lessee's rights hereunder or
in any Item of Equipment shall not be assigned, subleased or conveyed by Lessee
to any person, firm or corporation, and any such purported assignment, sublease
or conveyance shall be void AB INITIO except as permitted by Section 6.01
hereof.
6.03. USE. Lessee shall use the Aircraft solely in commercial operations in
the United States of America and Canada for which Lessee is duly authorized by
the Aeronautics Authority and shall not use or permit the Aircraft to be used
outside of the United States or Canada without the prior written consent of
Lessor or for any purpose for which the Aircraft are not designated and
reasonably suitable. In no event shall Lessee operate or use the Aircraft or
permit the Aircraft to be operated or used outside the United States in such a
manner as to exclude the Aircraft from the term "Section 38 property" by reason
of
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Section 48(a)(2) of the Code (or any successor or similar provision thereto), or
which would otherwise cause loss of any other tax benefits available to Lessor.
Lessee shall pay for and provide all electric power, oil, fuel and lubricants
consumed by and required for the operation of the Aircraft, and all repairs,
parts and supplies necessary therefor.
6.04. LAWFUL INSURED OPERATIONS. Lessee will not permit the Aircraft or any
Item to be maintained, used or operated in violation in any material respect
of any applicable law, treaty, statute, rule, regulation or order of any
government or governmental authority having jurisdiction (domestic or foreign),
or contrary in any material respect to any manufacturer's operating manuals,
instructions, and airworthiness directives, or, in violation of any applicable
airworthiness certificate, license or registration relating to the Aircraft or
Engines issued by any such authority. In the event that any such laws, rules,
regulations or orders require alteration of any Item of Equipment, Lessee shall
conform thereto at its sole expense and shall maintain the Item of Equipment in
proper condition for operation under such laws and rules. Lessee agrees not to
operate any Item, or suffer such Item to be operated, (A) unless such Item is
covered by insurance as required by the provisions of Article 12 hereof, or (B)
contrary to the terms of such insurance as required by the provisions of Article
12 hereof.
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6.05. MAINTENANCE. The Lessee, at its own cost and expense shall: (i)
service, repair, maintain and overhaul, test or cause the same to be done to
each Item of Equipment leased hereunder (A) so as to keep such Item in as good
an operating condition and appearance as when delivered to the Lessee hereunder,
ordinary wear and tear excepted, (B) so as to keep such Item in compliance with
all maintenance manuals initially furnished with the Aircraft, including any
subsequent amendments or supplements to such manuals issued by the manufacturer
from time to time, and all so-called "mandatory," "alert" and "highly
recommended" service bulletins and similar notices issued or supplied by or
available through the manufacturer of such Item, Airworthiness Directives (AD's)
and Federal Aviation Regulations revisions and similar notices issued or
supplied by or available through the manufacturer of such Item or Aeronautics
Authority; (C) so as to keep such Item's maintenance plan in accordance with the
Airframe, Engine and APU manufacturers' maintenance plans and the Maintenance
Review Board (MRB) document or in accordance with a maintenance program
developed by the Lessee, based on the above plans and documents, and approved by
the appropriate Aeronautics Authority; (D) so as to keep such Item in such
operating condition as may be necessary to enable the airworthiness
certification of such Item to be maintained in good standing at all times under
the applicable rules and regulations of the Aeronautics Authority, (E) so as to
ensure that all repairs are conducted in accordance with the Airframe, Engine,
or APU manufacturer's Structural Repair Manual (SRM) or repair procedures, as
applicable, or if not
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included, that the repair is eligible for U.S. FAA approval, if required, and is
accompanied by documentation providing methods of compliance; (ii) maintain all
records, logs and other materials required by the Aeronautics Authority to be
maintained in respect of such Item, and (iii) promptly furnish to the Lessor
upon the Lessor's request such information as may be required to enable the
Lessor to file any reports required to be filed with any governmental authority
because of the Lessor's interest in the Aircraft.
6.06. REGISTRATION AND INSIGNIA. The Lessee, at its own expense, shall
cause the Aircraft registration in the name of Lessor to remain in effect at all
times during the Term of this Lease. On the Commencement Date or thereafter, the
Lessee, if given them by Lessor, shall permanently affix in the cockpit of each
Aircraft in a location reasonably adjacent to and not less prominent than the
airworthiness certificate for the Aircraft, and on each Engine in a prominent
location, a plate bearing the following legend:
"Leased from
McDonnell Douglas Finance Corporation
"Owner-Lessor"
The Lessee will not allow the name of any other person, association or
corporation to be placed on the Airframe or any Engine as a designation that
might be interpreted as a claim of ownership or of any interest therein;
PROVIDED, HOWEVER, that the
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Lessee may cause the Airframe to be lettered or otherwise marked in a customary
manner for convenience of identification of the interest of the Lessee therein,
including but not limited to the customary logo of the Lessee.
6.07. RECORDS. Throughout the Term, Lessee shall keep accurate, complete
and current records (complying with the requirements of the Aeronautics
Authority, with the recommendations of suppliers of any part of the Aircraft and
with good commercial airline practice) of all maintenance carried out with
respect to an Aircraft and shall permit Lessor or any authorized representative
of Lessor to examine such records at any reasonable time.
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ARTICLE 7
INSPECTION; FINANCIAL INFORMATION
7.01. During the Term of this Lease, the Lessee shall furnish to the Lessor
such additional information concerning the location, condition, use and
operation of the Aircraft as the Lessor may reasonably request, and the Lessee
shall permit any person designated by the Lessor in writing, at the Lessor's
expense, to visit and inspect the Aircraft, their condition, use and operation
and the records maintained in connection therewith and to make copies of such
records at the Lessor's expense, and to visit and inspect the properties of the
Lessee and to discuss the affairs, finances and accounts of the Lessee with the
principal officers of the Lessee, all at such reasonable times and as often as
the Lessor may reasonably request. The Lessor shall have no duty to make any
such inspection and shall not incur any liability or obligation by reason of not
making any such inspection
7.02. The Lessee also agrees to furnish the Lessor during the Term:
(A) within 30 days after the end of each calendar quarter, copies of its
financial statements, including a balance sheet and statement of income and
expenses and within 60 days after the end of each calendar year its audited
financial statements certified to by independent public accountants;
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(B) From time to time, such other information as the lessor may reasonably
request.
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ARTICLE 8
LESSEE'S COVENANTS
The Lessee covenants and agrees that, during the Term hereof:
8.01. MAINTENANCE OF CORPORATE EXISTENCE. The Lessee will preserve and
maintain (a) its corporate existence, and (b) all of its rights, privileges
and. franchises in every jurisdiction in which the character of the property
owned or the nature of the business transacted by it makes licensing or
qualification necessary.
8.02. NOTICE OF LITIGATION, ETC. If not otherwise communicated pursuant to
Section 7.02, the Lessee will promptly give to the Lessor a notice in writing of
any proceeding involving a claim in excess of $1,000,000 before any governmental
agency which might, it determined adversely to Lessee, materially adversely
affect the Lessee's financial condition, affairs or operations.
8.03. PAYMENT OF TAXES. The Lessee will pay or cause to be paid all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income and profits, or upon any property belonging to it, prior to the date on
which penalties attach thereto and a11 lawful claims, which, if not paid, might
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become a lien or charge upon the property of the Lessee, PROVIDED, HOWEVER, that
the Lessee shall not be required to pay any such tax, assessment, charge, levy
or claim the pavement of which is being contested in good faith and by
appropriate proceedings, but only so long as such proceedings do not involve any
danger of adverse impact on business interests of the Lessor or of the sale,
forfeiture or loss of an Aircraft or any Item or interest therein; PROVIDED
FURTHER, that the Lessee will pay or cause to be paid all such taxes,
assessments, charges, levies or claims forthwith upon the commencement of
proceedings to foreclose any Lien which attaches as security therefor.
8.04. CONSOLIDATION, MERGER OR SALE. Lessee will not merge or consolidate
with or into any other corporation or entity (except to the extent Lessee is
successor, survivor or parent and, in such event, only if the net worth of the
successor, survivor or parent is, in, Lessor's reasonable judgment, equal to or
greater than the net worth of the Lessee as of the Delivery Date), or sell,
lease or otherwise dispose of all or substantially all of, its properties,
without the prior written consent thereto by the Lessor (which consent will not
be unreasonably withheld); provided, however, that Lessee may so merge,
consolidate or dispose of properties without Lessor's consent in contradiction
of the foregoing, however, in such event Lessor, at its option, may elect either
to continue the Lease or to require the Lessee to pay the Stipulated Loss Value
plus any accrued and unpaid Rent for the Aircraft and terminate this Lease.
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ARTICLE 9
REPLACEMENT OF PARTS;
ALTERATIONS, MODIFICATIONS AND ADDITIONS
9.01. REPLACEMENT OF PARTS. The Lessee, at its own cost and expense, will
promptly replace all Parts which may from time to time become worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use for any reason whatsoever. In addition, in the ordinary
course of maintenance, service, repair, overhaul or testing, the Lessee may
remove any Parts, whether or not worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use,
PROVIDED that the Lessee shall replace such Parts as promptly as practicable.
All replacement Parts shall be free and clear of all Liens and shall be in as
good an operating condition as, and shall have a value and utility at least
equal to, the Parts replaced, assuming such replaced Parts were in the condition
and repair required to be maintained by the terms hereof.
9.02. TITLE TO REPLACED PARTS. All Parts owned and leased by the Lessor
hereunder at any time removed from any Item of Equipment shall remain the
property of the Lessor and subject to this Lease, no matter where located, until
such time as such Parts shall be replaced by Parts which have been incorporated
or
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installed in or attached to such Item and which meet the requirements for
replacement Parts specified above. Immediately upon any replacement Part
becoming incorporated or installed in or attached to an Item as above provided,
without further act, (A) title to the replaced Part shall thereupon vest in the
Lessee, free and clear of all rights of the Lessor and shall no longer be deemed
a Part hereunder; (B) title to such replacement Part shall thereupon vest in the
Lessor; and (C) such replacement Part shall become subject to this Lease and be
deemed part of such Item for all purposes hereof to the same extent as the Parts
originally incorporated or installed in or attached to such Item.
9.03. ALTERATIONS, MODIFICATIONS AND ADDITIONS. The Lessee, at its own
expense, shall make alterations and modifications in and additions to an Item of
Equipment as may be required from time to time under any law, rule, directive,
bulletin, regulation or order of the Aeronautics Authority, or other
governmental authority having jurisdiction or issued by the manufacturer of such
Item of Equipment. In addition, the Lessee, at its own expense, may from time to
time make such alterations and modifications in and additions to each Item as
the Lessee may deem desirable in the proper conduct of its business, PROVIDED
that no such alteration, modification or addition diminishes the value, utility,
condition or airworthiness of such Item below the value, utility, condition and
airworthiness thereof immediately prior to such alteration, modification or
addition, assuming such Item was then in the condition and airworthiness
required to be
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maintained by the terms of this Lease, PROVIDED FURTHER, that the Lessee shall
not convert an Aircraft to an all-cargo or primarily cargo configuration without
the prior written consent of the Lessor, and PROVIDED FURTHER, that any such
alteration, modification, or addition (a) must be U.S. FAA approved or eligible
for U.S. FAA approval, if required by Lessor, and is accompanied by
documentation providing methods of compliance and (b) shall be made in
compliance with Internal Revenue Service guidelines so that the Lessor will not
lose all or any part of the Tax Benefits as hereinafter defined.
9.04. TITLE TO PARTS. Subject to the provisions hereof, title to all Parts
incorporated or installed in or attached or added to any Item as the result of
any alteration, modification or addition made as contemplated in Section 9.03
hereof shall, without further act, vest in the Lessor and become subject to this
Lease; PROVIDED, HOWEVER, that so long as no Default or Event of Default shall
have occurred and be continuing, at any time during the Term, the Lessee may
remove any Part from an Item of Equipment, provided that (A) such Part is in
addition to, and not in replacement of or in substitution for, any Part
originally incorporated or installed in or attached to such Item at the time of
delivery thereof hereunder or any Part in replacement of, or substitution for,
any such original Part; (B) such Part is not required to be incorporated or
installed in or attached or added to such Item pursuant to the terms of Section
6.05 hereof or the first sentence of Section 9.03; and (C) such Part can be
removed from such Item without diminishing or impairing the value, utility
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or airworthiness which such Item would have had at such time had such
alteration, modification or addition not occurred. Upon the removal by the
Lessee of any such Part as above provided, title thereto shall, without further
act, vest in the Lessee and such Part shall no longer be deemed a Part
hereunder. Any Part not removed by the Lessee as above provided prior to the
return of the Item to the Lessor hereunder shall remain the property of the
Lessor.
9.05. NO LIABILITY FOR ALTERATION, MODIFICATION OR ADDITION; GROUNDING. In
no event shall the Lessor bear any liability or cost whatsoever for (A) any
alteration, modification, addition, or (B) any grounding of an Aircraft, or
suspension of certification of an Aircraft or for loss of revenue suffered by
the Lessee for any reason whatsoever.
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ARTICLE 10
GENERAL TAX INDEMNITY
10.01. (a) INDEMNITY. Whether or not any of the transactions contemplated
hereby are consummated, the Lessee agrees to pay and, on written demand, to
indemnify, protect, save and hold Lessor harmless from all license and
registration fees, sales and use taxes, personal property taxes and any and all
other taxes, levies, imposts, duties, charges, assessments or withholdings of
any nature whatsoever together with any penalties, additions to tax, fines or
interest thereon (collectively, "Taxes") imposed against Lessor, Lessee or any
Item of Equipment, by any Federal, state or local government or taxing authority
in the United States, or by any taxing authority or governmental subdivision of
a foreign country or international organization, upon or with respect to any
Item of Equipment, or upon the purchase, ownership, delivery, leasing,
possession, use, operation, return or other disposition thereof, or upon the
rentals, receipts or earnings arising therefrom, or upon or with respect to this
Lease or related documents.
(b) LIMITATION ON INDEMNITY. Notwithstanding the provisions of
paragraph (a) of this Section 10.01, Lessee shall
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have no obligation thereunder as to Taxes based on or measured by the net income
of Lessor imposed by the United States of America or by any state or local
taxing authorities, including any Taxes resulting from an amendment of the Code
enacted after March 1, 1988, or any Taxes imposed on Lessor by any state which
result from either Lessor's residency or Lessor's doing business in that state
which is business unrelated to any Item of Equipment; provided, however, Lessee
shall be liable for Taxes based on or measured by Lessor's net income if, but
only if, such taxes are taxes on Lessor's net income which would not have been
imposed but for the use or operation of any Item of Equipment within the
jurisdiction of such taxing authority by Lessee, at Lessee's direction, or with
Lessee's consent. Lessee shall not have any liability to indemnify Lessor for
any Taxes imposed by any taxing jurisdiction if the Taxes result from delivery,
use, storage, return or physical presence of any Item of Equipment after return
of the respective Item of Equipment to Lessor by Lessee under #16.01. If an
indemnification payment is made under Article 21 hereof, the same event giving
rise to such payment shall not also result in an indemnification payment under
this Article 10 for the taxes indemnified in Article 21.
10.02. AFTER-TAX NATURE OF INDEMNITY. The Lessee further agrees that, with
respect to any payment or indemnity hereunder, such payment or indemnity shall
include any amount necessary to hold Lessor harmless on an after-tax basis from
all taxes required to be paid (or which would have been required to be paid by
Lessor with respect to such payment or indemnity had Lessor had
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sufficient gross income within the meaning of Section 61 of the Code, and the
applicable state and local law, actually to pay tax at the highest marginal
rate) by Lessor with respect to such payment or indemnity under the laws of any
Federal, state or local government or taxing authority in the United States, or
under the laws of any taxing authority or governmental subdivision of a foreign
country or international organization; PROVIDED that, if Lessor realizes a tax
benefit by reason of such payment or indemnity (whether such tax benefit shall
be by means of a depreciation deduction or otherwise), Lessor shall pay the
Lessee an amount equal to the net value to Lessor of such tax benefit when, as,
if and to the extent realized (such payments not to exceed in the aggregate the
amount of the related indemnity paid by Lessee); but not before the Lessee shall
have made all payments or indemnities to Lessor required pursuant to this
Article 10; PROVIDED FURTHER, however, that if Lessor loses such tax benefit
subsequent to any payment to the Lessee with respect thereto, the Lessee shall
indemnify Lessor with respect to such loss pursuant to the provisions of this
Article 10. Lessor shall in good faith use reasonable diligence in filing its
tax returns and in dealing with taxing authorities to seek and claim any such
tax benefit.
10.03. CONTEST. If written claim is made against Lessor for any Taxes
referred to in this Article 10, Lessor shall promptly notify the Lessee. If
reasonably requested by the Lessee in writing within 30 days after such
notification, Lessor shall upon receipt of indemnity satisfactory to it and at
the expense of the Lessee (including, without limitation, all costs, expenses,
losses, legal and accountants' fees and disbursements, penalties
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and interest) in good faith contest the validity, applicability or amount of
such Taxes by either (i) resisting payment thereof if practicable, or (ii) if
payment is made, using reasonable efforts to obtain a refund thereof in
appropriate administrative and judicial proceedings; PROVIDED, HOWEVER, that
the Lessor shall not be required to take any action to contest a claim unless
Lessee provides with such written request an opinion of independent counsel,
satisfactory both as to counsel and substance, to the effect that there is a
meritorious basis for such contest. If Lessor determines to pay such Taxes and
seek a refund, Lessee will either pay such Taxes on Lessor's behalf or will
promptly indemnify Lessor for such Taxes pursuant to Sections 10.1 and 10.2. If
Lessor shall obtain a refund of all or any part of such Taxes paid by the
Lessee, Lessor shall pay the Lessee the amount of such refund; PROVIDED that
such amount shall not be payable before such time as the Lessee shall have made
all payments of indemnities to Lessor then due under this Article 10. If in
addition to such refund Lessor shall receive an amount representing interest on
the amount of such refund, the Lessee shall be paid that proportion of such
interest which is fairly attributable to the Taxes paid by the Lessee prior to
the receipt of such refund. In case any report or return is required to be made
with respect to any obligation of the Lessee under this Article 10 or arising
out of this Article 10 the Lessee will promptly notify Lessor of such
requirement and will inform Lessor whether Lessee (i) will file such report or
return in such manner as will show the ownership in Lessor of each Item of
Equipment and send a copy of such report or
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return to the Lessor or (ii) will make such report or return for filing by
Lessor in such manner as shall be satisfactory to the Lessor. In the event of a
contest of any Taxes hereunder, the Lessor shall apprise the Lessee of all
material developments with respect to such contest, shall forward copies of all
material submissions made in such contest, shall consider in good faith any
request concerning the conduct of any such contest and without waiving its right
to be indemnified hereunder with respect to such claim shall not settle or
concede any such contest without the written consent of the Lessee.
10.04. SURVIVAL. The indemnification provided herein shall survive the
assignment, expiration or other termination of this Lease.
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ARTICLE 11
DAMAGE, DESTRUCTION, REQUISITION OR CONDEMNATION
11.01. EVENT OF LOSS WITH RESPECT TO AN AIRFRAME OR AN AIRFRAME AND THE
ENGINES INSTALLED THEREON. Upon the occurrence of an Event of Loss with respect
to an Airframe or to an Airframe and the Engines then installed on such
Airframe, the Lessee shall forthwith (and in any event within 10 days after such
occurrence) give the Lessor written notice of such Event of Loss. The Lessee
shall pay or cause to be paid to the Lessor in immediately available funds on
the earlier to occur of (i) five days after the date Lessee receives insurance
proceeds from such Event of Loss or (ii) the next immediately succeeding date on
which a Basic Rent installment is to he paid (A) then due and unpaid Rent
(prorated to the date of payment) in respect of such Aircraft to and including
such date; and (B) an amount equal to the Stipulated Loss Value in respect of
such Aircraft determined as of the date of such Event of Loss and (C) interest
at the Incentive Rate on the unpaid balance of (A) and (B) above from the due
date until paid in full, PROVIDED, HOWEVER, that payment of the Stipulated Loss
Value shall be made within ten days if the Event of Loss occurs after the
payment by the Lessee of the final Basic Rent installment and before termination
of the storage period provided for in Section 16.06 hereof. At such time as the
Lessor has received the sum of (A), (B) and (C) above, the obligation of the
Lessee to pay all Basic rent hereunder with respect to such
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Aircraft shall terminate, and the Lessor stall transfer to the Lessee all the
Lessor's right, title, and interest, as-is, where-is, without recourse or
warranty, express or implied, in and to (1) such Airframe and Engines, (2) all
claims for damage to such Items, if any, against third persons arising from the
Event of Loss (unless any insurance carrier requires that such claims be
assigned to it), and (3) all rights to any insurance claims under all insurance
maintained by the Lessee hereunder except liability insurance, without
representation, recourse or warranty of any kind whatsoever.
11.02. WITH RESPECT TO AN ENGINE. Upon the occurrence of an Event of Loss
with respect to an Engine not then installed on an Airframe, or an Event of Loss
with respect to an Engine installed on an Airframe not involving an Event of
Loss with respect to the Airframe, the Lessee shall give the Lessor prompt
written notice thereof and the Lessee shall replace such Engine as soon as
practicable after the occurrence of such Event of Loss by duly conveying to the
Lessor as a replacement for said Engine, title to another engine of the same
manufacturer and of the same or an improved model and suitable for installation
and use on the Airframe, which engine shall be free and clear of all Liens, and
shall have a value and utility at least equal to, and he in as good an operating
condition as, the Engine with respect to which such Event of Loss occurred,
assuming such replaced Engine was of the value and utility and in the condition
and repair as required by the terms hereof immediately prior to the occurrence
of such
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Event of Loss. Such replacement engine, after approval and acceptance by the
Lessor, shall be deemed an Engine as defined herein, for all purposes hereunder.
The Lessee agrees to take such action as the Lessor may reasonably request to
ensure that any such replacement Engine shall be duly and properly titled in the
name of Lessor and leased hereunder to the same extent as any Engine replaced
thereby. Prior to or at the time of any such conveyance, the Lessee, at its own
expense, will promptly (i) furnish the Lessor with a warranty bill of sale, in
form and substance satisfactory to the Lessor, with respect to such replacement
Engine, (ii) cause a supplement hereto, in form and substance satisfactory to
the Lessor, subjecting such replacement Engine to this Lease, to be duly
executed by the Lessee, and recorded pursuant to the Federal Aviation Act, and
(iii) furnish the Lessor with such evidence of title to such replacement Engine
and of compliance with the insurance provisions of Article 12 hereof with
respect to such replacement Engine as the Lessor may reasonably request. Upon
full compliance with this Section 11.02, the Lessor shall transfer to the Lessee
all the Lessor's right, title and interest, as-is, where-is, without recourse or
warranty, express or implied, in and to (1) the Engine with respect to which
such Event of Loss occurred, (2) all claims for damage to such Engine, if any,
against third persons arising from the Event of Loss (unless any insurance
carrier requires that such claims be assigned to it), and (3) all rights to any
insurance claims under all insurance maintained by the Lessee hereunder except
liability insurance. No Event of Loss with respect to such Engine under the
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circumstances contemplated by the terms of this Section 11.02 shall result in
any reduction in Rent or in the Lessee's obligation to pay Basic Rent hereunder.
The Lessee agrees that it shall at all times during the Term of this Lease
maintain the Engines or other engines of the same or improved model and suitable
for installation and use on the Airframes as the Engines on the Aircraft leased
hereunder. The Lessee agrees that it will indemnify the Lessor, pursuant to
Article 21 hereof, for any loss of tax benefits resulting from such Event of
Loss with respect to an Engine.
11.03. APPLICATION OF PAYMENTS FROM GOVERNMENTAL AUTHORITIES FOR
REQUISITION OF TITLE. Any payments (other than insurance proceeds the
application of which is provided for in Article 12 hereof) received at any time
by the Lessor or the Lessee from any Governmental authority or other entity with
respect to an Event of Loss resulting from the condemnation, confiscation, theft
or seizure of, or requisition of title to or use of an Aircraft, Airframe or
Engines, will be applied as follows:
(A) If such payments are received with respect to an Event of Loss
relating to an Airframe and installed Engines, only so much of such
payments as shall not exceed the amounts due under Section 11.01(A), (B)
and (C) shall be applied in reduction of the Lessee's obligation to pay
such amounts, if not already paid by the Lessee, or if already paid by the
Lessee, shall be applied to reimburse the Lessee for its
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payment of such amounts, and the balance, if any, of such payments
remaining thereafter will he paid over to or retained by the Lessor; and
(B) If such payments are received with respect to an Engine under the
circumstances described in section 11.02, all such payments shall be paid
over to the Lessee, at such time as the Lessee shall have replaced such
Engine in accordance with the provisions of said Section 11.02.
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ARTICLE 12
INSURANCE
12.01. PUBLIC LIABILITY AND PROPERTY DAMAGE LIABILITY INSURANCE. The Lessee
will carry, at its own expense, third party aircraft liability insurance,
passenger legal liability insurance and property damage liability insurance
during the Term hereof in an amount not less than $75,000,000 for any one
accident, or series of accidents arising out of any one event, with respect to
each Aircraft. Any such liability insurance policy shall not contain a provision
for deductible or self-insurance amounts. In any event all such policies shall
be (A) in amounts which are not less than the public liability and property
damage insurance applicable to similar aircraft and engines which may at any
time during the Term hereof comprise the Lessee's fleet on which the Lessee
carries insurance; and (B) maintained in effect with insurers of recognized
reputation and responsibility, reasonably satisfactory to the Lessor. Any
policies of insurance carried in accordance with this Section 12.01 and any
policies taken out in substitution or replacement of any of such policies: (1)
shall name the Lessor as owner and as additional insured; (2) shall provide that
in respect of the interest of the Lessor such policies of insurance shall not be
invalidated by any action or inaction of the Lessee and shall insure Lessor
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regardless of any breach or violation of any warranty, declarations or
conditions contained in such policies by the Lessee; and (3) shall provide that
if the insurers cancel such insurance for any reason whatever, or the same is
allowed to lapse for nonpayment of premium, or if there is any material change
in policy terms or conditions, such cancellation, lapse or change shall not be
effective for thirty (30) days after receipt by the Lessor of written notice by
such insurers to the Lessor of such cancellation, lapse or change. Each
liability policy (i) shall be primary without right of contribution from any
insurance which is carried by the Lessor, (ii) shall expressly provide that all
of the provisions thereof, except the limits of liability, shall operate in the
same manner as if there were a separate policy covering each insured, and (iii)
shall waive any rights of set-off, counterclaim or other deduction against each
named insured. The Lessee shall arrange for evidence of appropriate coverage as
to each Aircraft and as to the satisfaction of the requirements set forth above
in this Section 12.01 to be furnished to the Lessor on or before the Delivery
Date for each Aircraft by Lessee's insurance broker.
12.02. INSURANCE AGAINST LOSS OR DAMAGE TO THE AIRCRAFT. The Lessee shall
maintain in effect, at its own expense, with insurers of recognized reputation
and responsibility reasonably satisfactory to the Lessor: (A) all-risk ground
and
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flight aircraft hull insurance covering the Aircraft; (B) fire, transit and
extended coverage with respect to any Engines or Parts while removed from an
Aircraft; (C) at the request of Lessor, hijacking (air piracy) insurance
reasonably satisfactory to Lessor; and (D) at the request of Lessor, war risk,
governmental confiscation and expropriation and related insurance, but only to
the extent (i) such insurance is maintained by Lessee with respect to other
aircraft operated by Lessee on the same routes as the Aircraft, or (ii) the
custom in the United States airline industry is to carry such insurance with
respect to aircraft operated on the same routes as the Aircraft.
All such insurance shall be in full force and effect throughout any
geographical areas at any time traversed by the Aircraft, shall be payable in
dollars in the United States and be in substantially the amount usually carried
by corporations engaged in the same or similar business and similarly situated
with the Lessee; PROVIDED that all such insurance for each Aircraft shall during
the Term hereof be for an amount not less than the Stipulated Loss Value for
such Aircraft. Any hull insurance carried in accordance with this Section 12.02
may contain a provision for a deductible amount not to exceed, per occurrence,
$50,000. Any policies carried in accordance with this Section 12.02 covering the
Aircraft and any policies taken out in substitution or replacement for any such
policies: (1) shall name the Lessor as owner and as additional insured or loss
payee, as appropriate; (2) shall be made payable to all insureds as their
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respective interests may appear; (3) shall provide that if such insurance is
cancelled or materially changed for any reason whatever, or the same is allowed
to lapse for non-payment of premium, such cancellation, change or lapse shall
not be effective as to the Lessor for thirty (30) days after receipt by the
Lessor of written notice by such insurers of such cancellation or lapse or
material change in policy terms and conditions (other than war risk insurance,
in which case seven days' notice shall be given); (4) shall provide that losses
shall be adjusted with the Lessor and Lessee as their interests may appear and
be payable to Lessor in the event of any damage or loss resulting in a payment,
for any one occurrence, in excess of $250,000; (5) shall provide that in respect
of the interest of the Lessor in such policies the insurance shall not be
invalidated by any action or inaction of the Lessee or any other person and
shall insure the Lessor regardless of any breach or violation of any warranties,
declarations or conditions contained in such policies by the Lessee or any other
person; (6) shall waive any right of set-off, counterclaim or other deduction
against each named insured; and (7) shall contain such other customary
provisions as Lessor may reasonably require. The Lessee shall arrange for
evidence of appropriate coverage for each Aircraft and to the satisfaction of
the requirements set forth above to be given to the Lessor on or before the
Delivery Date for each Aircraft by its insurance broker.
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12.03. APPLICATION OF PROCEEDS IN AN EVENT OF LOSS. Provided no Default or
Event of Default shall exist, it is agreed that all insurance payments received
as the result of the occurrence of an Event of Loss with respect to an Airframe
and installed Engines or any Engine will be applied as follows:
(A) So much of such payments as shall not exceed the amount required
to be paid by the Lessee pursuant to Section 11.01 shall to applied in
reduction of the Lessee's obligation to pay such amount if not already paid
by the Lessee or, if already paid by the Lessee, shall be applied to
reimburse the Lessee for its payment of such amount, and the balance, if
any, of such payment remaining thereafter will be paid over to, or retained
by, the Lessee; and
(B) If such payments are received with respect to an Engine under the
circumstances contemplated by Section 11.02, such payments shall be paid
over to, or retained by, the Lessee, PROVIDED that the Lessee shall have
fully performed the terms of Section 11.02 with respect to the Event of
Loss for which such payments are made.
Any amount referred to in clause (A) or (B) above which is payable to
Lessee shall not be paid to the Lessee if at the time of such payment a
Default or an Event of Default shall have occurred and be continuing, but
shall be held by the Lessor as security for the obligations of Lessee under
this Lease and such amount shall be paid to Lessee at such time as there no
longer exists any Default or Event of Default.
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12.04. APPLICATION OF PROCEEDS IN THE ABSENCE OF AN EVENT OF LOSS. As
between Lessor and Lessee, the insurance payments of any property damage loss to
an Airframe or any Engine not constituting an Event of Loss with respect thereto
will be applied (or advanced as may be required by the repair facility) in
payment for repairs or for replacement property in accordance with the terms of
Articles 6 and 9, if not already paid for by the Lessee (or to reimburse the
Lessee for such repairs or replacements already paid for by the Lessee), and any
balance remaining after compliance with such Articles with respect to such loss
shall be paid to the Lessee. Any amount referred to in the preceding sentence
which is payable to Lessee shall not be paid to the Lessee if at the time of
such payment Lessee shall not be current in its payment of Rent hereunder, but
shall be held by the Lessor as security for the obligations of Lessee under this
Lease and such amount shall be paid to Lessee at such time as Lessor has
received all Rent then due.
12.05. REPORTS, ETC. On the Delivery Date for each Aircraft and annually on
the anniversary date thereof, the Lessee shall furnish to the Lessor a report
from the Lessee's insurance broker describing in reasonable detail the insurance
then carried and maintained on the Aircraft, certifying that such insurance
complies with the terms hereof and stating the opinion of such broker that such
insurance is adequate for the protection of the interests of the Lessor and the
Lessee in accordance with the terms hereof. The Lessee will advise the Lessor in
writing promptly of any default in the payment of any premium and of any
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other act or omission on the part of the Lessee which might invalidate or render
unenforceable, in whole or in part, any insurance on an Aircraft. In the event
that the Lessee shall fail to maintain insurance as herein provided, the Lessor
may at its sole option provide such insurance and, in such event, the Lessee
shall thereupon reimburse the Lessor, as Supplemental Rent, for the cost
thereof; PROVIDED, HOWEVER, that no exercise by the Lessor of said option shall
affect the provisions of this Lease, including the provisions that failure by
the Lessee to maintain the prescribed insurance shall constitute an Event of
Default.
12.06. ENDORSEMENTS. All policies of insurance required by this Lease shall
be in form and substance acceptable to Lessor.
12.07. LESSOR'S ADDITIONAL INSURANCE. The Lessor may at its option and at
its sole expense carry insurance covering its interest in the Aircraft, in
addition to that required to be provided and maintained by the Lessee pursuant
to this Article 12, PROVIDED that no such insurance shall have the effect of
suspending, impairing, defeating, invalidating or rendering unenforceable or
reducing, in whole or part, the coverage of or the proceeds payable under any
insurance required to be provided and maintained by the Lessee pursuant to this
Article 12.
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ARTICLE 13
GENERAL INDEMNIFICATION
13.01. The Lessee agrees to assume liability for, and does hereby
indemnify, protect, save and keep harmless the Lessor and its successors,
assigns, agents and servants from and against any and all claims, damages,
losses, liabilities (including, but not limited to, any claim or liability for
strict liability in tort or otherwise imposed including, without limitation,
liability arising under any applicable environment or noise or pollution control
statute, rule or regulation), obligations, demands, suits, penalties, judgments
or causes of action and all legal proceedings, whether civil or criminal,
penalties, fines and other sanctions, and any costs and expenses in connection
therewith including, without limitation, legal fees and, expenses of whatever
kind and nature (whether or not also indemnified against by any other person
under any other document), which may result from or grow or arise in any manner
out of the condition, ownership, manufacture, construction, design (including,
without limitation, latent and other defects whether or not discoverable by
Lessee or Lessor and any claim for patent, trademark or copyright infringement),
acceptance, non-acceptance, rejection, delivery, lease, possession, return,
disposition, use or operation (in each and every case) of the Aircraft or any
Item of Equipment either in the air or on the
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ground (except claims arising out of the gross negligence or willful misconduct
of the Lessor or its successors or assigns), or arising from the material or any
article used therein or from the design, testing or use thereof or from any
maintenance, service, repair, overhaul or testing of the Aircraft or any Item
regardless of when such defect shall be discovered, whether or not such Aircraft
or any Item is at the time in the possession of the Lessee and whether it is in
the United States of America or any other country. The indemnities contained in
this Section shall continue in full force and effect notwithstanding the
assignment, expiration or other termination of this Lease.
13.02. The Lessee hereby waives and releases any claim now or hereafter
existing against the Lessor and its successors or assigns-agents and servants on
account of any and all claims, demands, suits, judgments or causes of action for
or on account of or arising or in any way connected with injury to or death of
personnel of the Lessee or loss or damage to property of the Lessee or the loss
of use of any property which may result from or grow or arise in any manner out
of the condition, use or operation of the Aircraft or any Item, either in the
air or on the ground during the Term hereof, or which may be caused during the
Term hereof by any defect (whether
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latent or patent) in the Aircraft or any Item from the material or, any article
used therein or from the design, testing or use thereof or from any maintenance,
service, repair, overhaul or testing of the Aircraft or any Item regardless of
when such defect shall be discovered, whether or not such Aircraft or any Item
is at the time in the possession of the Lessee and whether it is in the United
States of America or any other country.
13.03. The Lessee further agrees that, with respect to any payment or
indemnity hereunder, such payment or indemnity shall include any amount
necessary to hold the recipient of the indemnity harmless on an after-tax basis
from all taxes required to be paid (or which would have been required to he paid
by Lessor with respect to such payment or indemnity had Lessor had sufficient
gross income within the meaning of Section 61 of the Code actually to pay tax at
the highest marginal rate) by such recipient with respect to such payment or
indemnity under the laws of any Federal, state or local government or taxing
authority in the United States, or under the laws of any taxing authority or
governmental subdivision of a foreign country; PROVIDED that, if any recipient
of a payment or indemnity realizes a tax benefit by reason of such payment or
indemnity (whether such tax benefit shall be by means of a depreciation
deduction or otherwise), such recipient shall pay the Lessee an amount equal to
the sum of such tax benefit plus any tax benefit realized as the result of any
payment made pursuant to this proviso, when, as, if and
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to the extent realized; but not before the Lessee shall have made all payments
or indemnities to such recipient with respect to such loss pursuant to the
provisions of this Article 13. Each such recipient shall in good faith use
reasonable efforts in filing its tax returns and in dealing with taxing
authorities to seek and claim any such tax benefit.
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ARTICLE 14
LIENS
The Lessee shall not, directly or indirectly create, incur, assume or
suffer to exist any Lien on or with respect to any Item of Equipment or title
thereto or any interest therein, or in this Lease, except (i) the respective
rights of the Lessor and the Lessee as herein provided; (ii) Liens which result
from the Lessor's own acts or from claims against the Lessor not to be paid or
indemnified against by the Lessee hereunder; (iii) Liens for taxes either not
yet due or being contested in accordance with Article 10 hereof; and (iv)
inchoate materialmen's, mechanics', workmen's, repairmen's, employees' or other
like liens arising in the ordinary course of business and for amounts the
payment of which is either not yet delinquent or is being contested in good
faith (and for the payment of which adequate reserves have been provided) by
appropriate proceedings so long as such proceedings do not involve any danger of
sale, forfeiture or loss of any Item of Equipment or any interest therein. The.
Lessee shall promptly, at its own expense, take such action as may be necessary
to duly discharge any such Lien not excepted above if the same shall arise at
any time with respect to an Item of Equipment leased hereunder.
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ARTICLE 15
RECORDATION AND FURTHER ASSURANCES
15.01. The Lessee shall, at its expense, cause this Lease, all Exhibits
hereto, the Lease Supplements and any and all additional instruments which shall
be executed pursuant to the terms hereof so far as permitted by applicable law
or regulations, to be kept, filed and recorded and to be re-executed, refiled,
and re-recorded at all times in the office of the Aeronautics Authority,
pursuant to the Federal Aviation Act, and in such other places or with such
other governmental authorities as the Lessor may reasonably request to perfect
and preserve the Lessor's rights hereunder, and the Lessee shall, as may be
reasonably requested by the Lessor, furnish to the Lessor an opinion of counsel
or other evidence satisfactory to the Lessor of each such filing or refiling and
recordation or re-recordation.
15.02. Without limiting the foregoing, the Lessee shall do or cause to be
done, at the. Lessee's cost and expense, any and all acts and things which may
be required under the terms of the Convention for the International Recognition
of Rights in Aircraft, signed (ad referendum) at Geneva, Switzerland, on June
19, 1948, to perfect and preserve the Lessor's interest in and to the Aircraft
within the jurisdiction of any signatory State which
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has ratified said Convention and in the territory of which the Lessee may
operate the Aircraft as the Lessor may reasonably request. The Lessee shall also
do or cause to be done, at its own expense, any and all acts and things which
may be required under the terms of any other agreement, treaty, convention, pact
or by any practice, custom, or understanding recognized as having wide
application or control involving any jurisdiction in which the Lessee may
operate, or any and all other acts and things which the Lessor may reasonably
request and which are necessary, to perfect and preserve the rights of the
Lessor hereunder, in and to any Item of Equipment, within any such jurisdiction.
15.03. In addition, the Lessee will promptly and duly execute and deliver
to the Lessor such further documents and assurances and take such further action
as the Lessor may from time to time reasonably request in order to more
effectively carry out the intent and purpose of this Lease and to establish and
protect the rights and remedies created or intended to be created in favor of
the Lessor hereunder, including, without limitation, if requested by the Lessor,
at the expense of the Lessee, the execution and delivery of supplements or
amendments hereto, in recordable form, subjecting to this Lease any replacement
or substituted engine and the recording or filing of counterparts hereof, or of
financing statements with respect hereto, in accordance with the laws of such
jurisdictions as the Lessor may reasonably deem advisable.
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ARTICLE 16
RETURN OF AIRCRAFT AND RECORDS
16.01. RETURN. At the expiration of the Term for an Aircraft or upon the
termination of this Lease pursuant to Article 18, the Lessee, at its own
expense, shall return the Aircraft to the Jamestown, New York airport. As
requested by Lessor, Lessee shall at Lessee's expense ferry the Aircraft to the
Lessor at such location within the continental United States as may be
designated in writing by the Lessor. At the time of such return, the Airframe
shall have installed thereon two Engines, or improved model engines owned by the
Lessee suitable for installation and use on the Airframe. Lessee shall not be
relieved of any of its duties, obligations, covenants or agreements under this
Lease (including, without limitation, its obligation to pay Basic Rent) prior to
the return of the Aircraft in the manner and condition required with respect to
such return. The Aircraft, upon redelivery pursuant hereto, (i) shall be duly
certified by the Aeronautics Authority as an airworthy aircraft, (ii) shall be
free and clear of all liens, charges and encumbrances of every nature and
description whatever ("Liens"), other than this Lease and any Liens created or
granted by Lessor with respect to Lessor's purchase or financing of the Aircraft
or resulting from claims against Lessor not related to Lessor's ownership of the
Aircraft (such permitted liens collectively referred to as "Lessor's Liens"),
(iii) shall be in the same operating
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condition, ordinary wear and tear excepted, as when delivered to Lessee
hereunder and (iv) shall satisfy all the following conditions:
1. CERTIFICATION
The Aircraft shall have a valid Certificate of Airworthiness issued by the
U.S. FAA and shall have been continuously and currently maintained in compliance
with the requirements of the Airframe and Engine manufacturers' approved
maintenance programs or the Lessee's FAA approved maintenance program for
Airframe, Engines and Parts.
2. OVERHAUL AND REPAIR
All Parts and Engines shall be documented to have been repaired or
overhauled by certified U.S. FAA repair stations or by those approved by the
U.S. FAA through reciprocal agreements.
All overhaul and repair procedures shall be further verified to meet all
U.S. FAA requirements for quality and documentation necessary to enable
immediate transferal to operation within the continental limits of the United
States under Federal Aviation Regulation Part 121.
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3. REPAIRS
The Lessee shall ensure that all major repairs performed since the Delivery
Date and which still are in existence on the Aircraft are in conformity with the
manufacturer's Structural Repair Manual (SRM) and have or are immediately
eligible to receive U.S. FAA approval, if so required by Lessor. All such
repairs shall be accompanied by all data and documentation necessary to
substantiate their certification and approval, as required by Lessor.
4. MODIFICATIONS
All modifications performed since the Delivery Date which deviate from the
certified configuration and which are still in existence on the Aircraft shall
have U.S. FAA approval or certification or be removed by Lessee unless otherwise
deemed acceptable in writing by Lessor in its sole discretion. All such
modifications shall be accompanied by complete data and documentation necessary
to substantiate their certification and approval.
5. AIRWORTHINESS DIRECTIVES
All U.S. FAA Airworthiness Directives and amendments or changes to the
Federal Aviation Regulations applicable to the Aircraft, Engines, or Parts shall
have been accomplished in compliance with the issuing agency's specific
instructions.
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Airworthiness Directives which allow temporary compliance by inspection,
but require terminating compliance within the next year following return shall
have such terminating compliance complete.
6. RECORDS
All records necessary and required by the U.S. FAA to certify and place the
Aircraft on an FAA approved maintenance program shall be delivered with the
Aircraft. If hard, non-computerized, copies of maintenance records are not
available, then the Lessee shall take action with pertinent regulatory agencies
to ensure that the Lessor and the U.S. FAA are provided with all requested
guarantees of methods of compliance, component overhaul and management,
scheduling, quality control, serial number verification, etc. These records
shall be all inclusive to the Airframe, Engines and Parts, and as a minimum,
extend to include all activities associated with each of the last completed
maintenance checks, repairs, scheduled inspections and functional tests, and
overhauls performed to the Lessee's approved maintenance programs.
All Parts identified with safe life limits shall be identified with their
service histories, accumulated cycles or flight hours as applicable and
remaining service lives on a separate listing.
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All components and assemblies which are identified on the maintenance
records by part numbers and serial numbers other than the manufacturers' shall
be provided with interchange or cross reference listing necessary to establish
complete traceability.
All documentation, flight, and maintenance records as specified by U.S.
Federal Aviation Regulations 91.173, 91.174, and each paragraph of 121.380 which
normally accompany the transferal of an aircraft which has been operating in
regulated commercial air service, shall be delivered to the Lessor with the
Aircraft.
In the event of missing, incomplete, or unacceptable records, the Lessee
shall re-accomplish the tasks necessary to produce such records in accordance
with its approved maintenance programs prior to delivery of the Aircraft.
All documentation and records shall be made available to the Lessor for
review at a central location a minimum of fifteen Business Days prior to the
required date of Aircraft delivery to the Lessor.
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7. SCHEDULED MAINTENANCE - AIRFRAME
The Lessee will be responsible for ensuring that the Aircraft meets the
following conditions to facilitate transference of the Certificate of
Airworthiness and establish a maintenance halftime Aircraft.
<Table>
C Check: The Aircraft shall have completed a full C Check per the
Lessee's approved maintenance, program within thirty (30) days
prior to delivery.
Structure The Aircraft shall not have accumulated more than one-half (1/2)
Program: time until the next scheduled structural program inspection.
In the event that this check is performed in phases in
conjunction with the C Check, the current phase shall be
performed with the required return condition C Check.
Airworthiness All airworthiness limitations checks shall be current.
Limitations:
</Table>
In the event that scheduled intervals change during the term of the Lease,
the Lessee shall insure that all major checks under Lessee's approved
maintenance program, structural inspection program, heavy maintenance visit, or
other designators current at the time of return to the Lessor are in a minimum
one-half time condition.
8. SCHEDULED MAINTENANCE - ENGINES
For the purpose of this Section, time remaining, with respect to any
Engine, shall mean the number of hours remaining before it shall be necessary to
replace any life-limited component contained in such Engine.
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Each Engine shall have an aggregate of not less than one-half (1/2) time
remaining on all time/cycle limited components combined, based on the
manufacturer's recommended maintenance schedule at the time of return and each
Engine shall have not less than one-half (1/2) time/cycles remaining, based on
the first limiting item, to the next scheduled shop visit for inspection or
replacement of Engine components necessitated by the Lessee's maintenance
program, overhaul schedule, General Electric life limits, airworthiness
directives, hot section inspections, FOD, compulsory regulations, etc.
9. SCHEDULED MAINTENANCE - COMPONENTS
All cycle/hour/calendar controlled components installed on the Aircraft
shall be in a one-half time condition.
10. SAFE LIFE LIMITS
All parts, components and assemblies identified with safe life limits shall
have a minimum of one-half of their scheduled lives remaining.
11. SCHEDULED MAINTENANCE - OTHER CHECKS
Any scheduled maintenance or inspections, in addition to those specified in
items 7, 8, 9 and 10 shall have a minimum of one-half of their scheduled times
remaining; e.g., unequally loaded phase checks, airworthiness limitations,
corrosion control program, etc.
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12. DEFERRED MAINTENANCE
There shall be no open, outstanding, or deferred maintenance items,
scheduled or unscheduled, against the Aircraft including those identified in
pre-delivery inspections or test flights.
13. CORROSION
The Lessee shall maintain corrosion control through its approved
maintenance program and provide a summary of specific corrosion correction of
the Aircraft.
There shall be no untreated or uncorrected corrosion remaining on the
Aircraft including within the fuel tanks.
14. PRE-RETURN INSPECTIONS
The Lessor shall be permitted to perform a minimum of two physical
inspections of the Aircraft exclusive of test flights. One inspection will be
performed immediately prior to return. The Aircraft interior, exterior, wheel
wells and wing spar areas shall be thoroughly cleaned to normal airline
maintenance standards prior to the inspection. The inspection shall include, but
not be limited to, ground evaluation and system functional tests including
engine runs if deemed necessary by the Lessor.
In addition, one inspection shall be permitted during the maintenance check
which precedes return.
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15. ACCEPTANCE FLIGHT
The Lessee shall provide for acceptance flights as necessary to demonstrate
the airworthiness of the Aircraft and the proper functioning of all systems and
components.
16. AIRCRAFT PHYSICAL CONDITION
The Aircraft shall be complete and function and perform in accordance with
the manufacturers' specifications.
Discrepancies noted during the pre-return inspections and acceptance
flights shall be corrected in accordance with the manufacturers' manuals.
17. GENERAL APPEARANCE
The Aircraft shall be clean, cosmetically acceptable, interior complete and
prepared to place into U.S. scheduled revenue airline operations.
16.02. EQUIVALENCY CHARGE. In the event that any of the Engines does not
meet the conditions set forth in Clause 8 of Section 16.01 above, Lessee shall
pay Lessor an amount for each such Engine equal to the product of (1) the ratio
that the time (or cycles) accumulated since allowable time (or cycles) bears to
the time (or cycles) allowable, and (2) the then current rates charged by
Lessee's Aeronautics Authority approved engine repair contractor for such
maintenance.
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16.03. MANUALS. Upon the return of the Aircraft, in accordance with this
Article 16, Lessee shall deliver to Lessor all logs, manuals, certificates and
data, and inspection, modification and overhaul records required to be
maintained with respect to the Aircraft under applicable rules and regulations
of the Aeronautics Authority. All such records shall be made available to Lessor
for review a minimum of seven (7) days prior to the agreed date of return. In
the event logs are missing or incomplete, Lessor shall have the right to cause
the logs to be reconstructed at the expense of Lessee.
16.04. MAINTENANCE AT LESSOR'S REQUEST. Upon receipt of written notice from
the Lessor not less than 60 (nor more than 120) days prior to any expiration or
termination of this Lease as to an Aircraft, the Lessee agrees to perform
maintenance to the Airframe and/or the Engines for such Aircraft. Such
maintenance shall be done in the same manner and with the same care as used by
the Lessee with similar airframes and engines of its own and shall be completed
as promptly as possible after any such termination of this Lease as to such
Airframe or Engines, and the Lessor shall reimburse the Lessee in an amount
equal to (1) the lesser of (x) the sum of the Lessee's direct costs for
materials plus the Lessee's direct labor costs incurred in connection with such
maintenance, or (y) the Lessee's standard contract rates, if any, therefor, or
(2) if such maintenance is performed by someone other than the Lessee, the
actual amount paid therefor by the Lessee.
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16.05. ENGINES. In the event any engine not owned by the Lessor shall be
returned with the Airframe, such engine shall be of the same or improved model
as the Engines and suitable for installation and use on the Airframe and shall
have a value and utility at least equal to, and be in as good an operating
condition as, such Engines, assuming such Engines were in the condition and
repair as required by the terms hereof immediately prior to such termination,
and the Lessee will, at its own expense and concurrently with such return,
furnish the Lessor with a bill of sale, in form and substance satisfactory to
the Lessor, with respect to each such engine together with evidence of the
Lessee's title to such engine (including, if requested, an opinion of the
Lessee's counsel) and shall take such other action as the Lessor may reasonably
request in order that such engine shall be duly and properly titled in the name
of Lessor, and upon passage of title to such engine to the Lessor, such engine
shall be deemed to be an Engine for all purposes of this Lease. Upon full
compliance with the terms of this Section, the Lessor will transfer to the
Lessee the Lessor's interest in any Engine replaced by an engine pursuant to the
preceding sentence without any representation, warranty or recourse of any kind
whatsoever, express or implied.
16.06. STORAGE. Upon any expiration or termination of this Lease for an
Aircraft, at the written request of the Lessor, the Lessee will arrange, or will
cause to be arranged, storage facilities for the Aircraft at the Lessee's
facilities for a period not exceeding 30 days without charge to the Lessor. The
Lessee will maintain in effect during such storage periods insurance covering
the Aircraft pursuant to Section 12.02 hereof
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to the extent such insurance is available at reasonable commercial rate and in
such amounts and against such risks as would be customarily carried in similar
circumstances by a reasonably prudent lessor, with such insurance being paid for
by Lessor.
16.07. SPECIAL MARKINGS. 'Upon the termination or expiration of this Lease
for an Aircraft, the Lessee shall, at its cost, remove from the exterior of the
Aircraft all insignias and other distinctive markings. This provision shall not
require the Lessee to strip the paint off the Aircraft or require the Lessee, to
repaint the Aircraft.
16.08. SURVIVAL. The provisions of this Article 16 shall survive the
expiration or other termination of this Lease and the return of the Aircraft.
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ARTICLE 17
EVENTS OF DEFAULT
The following events shall constitute Events of Default (whether such
events shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):
(a) Lessee Fails to make any payment of Basic Rent within five (5) days of
the date due or, after Lessor gives written notice to Lessee that
Supplemental Rent is due, fails to make any payment of Supplemental Rent to
the Lessor when due under this Lease, and such failure to pay Supplemental
Rent continues for a period of five (5) days; or
(b) Lessee fails to procure and maintain any insurance required by Article
12 hereof; or
(c) Lessee fails to perform or observe any of the covenants, conditions or
agreements to be performed or observed by it under Sections 6.01, 6.02, 6.03,
6.04, 8.01(a) or 8.04 hereof; or
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(d) Lessee fails to perform or observe in any material respect any other of
the covenants, conditions, or agreements to be performed or observed by it
hereunder and such failure continues for a period of thirty (30) days after
written notice thereof from the Lessor to the Lessee; or
(e) Any representation or warranty made by the Lessee herein or in any
document or certificate furnished the Lessor in connection herewith or
pursuant hereto proves to be incorrect in any material respect; or
(f) Any obligation of the Lessee for the payment of borrowed money in
excess of $500,000 (with respect to either principal or interest), or payment
of the deferred purchase price of any property, or payment of any obligation
under any lease of aircraft or aircraft-related equipment shall not be paid
within 45 days of when the same becomes due whether by acceleration or
otherwise after expiration of any applicable grace period or extension
thereof, or the Lessee fails to perform or observe in any material respect
any other provision (unless such provision has been waived) in any such
obligation or in any agreement securing or relating to such obligation, and
the effect of such failure is to cause such obligation to become due prior to
its stated maturity; or
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(g) Lessee consents to the appointment of a receiver, trustee or liquidator
of itself or of a substantial part of its property, or Lessee admits in
writing its inability to pay its debts generally as they become due, or makes
a general assignment for the benefit of creditors, or Lessee files a
voluntary petition in bankruptcy or a voluntary petition or an answer seeking
reorganization in a proceeding under any bankruptcy laws (as now or hereafter
in effect) or an answer admitting the material allegations of a petition
filed against the Lessee in any such proceeding, or Lessee by voluntary
petition, answer or consent seeks relief under the provisions of any other
now existing or future bankruptcy or other similar law providing for the
reorganization or winding-up of corporations, or providing for an agreement,
composition, extension or adjustment with its creditors; or
(h) An order, judgment or decree is entered in any proceedings by any court
of competent jurisdiction appointing, with or without the consent of the
Lessee, a receiver, trustee or liquidator of the Lessee or of any substantial
part of its property, or any substantial part of the property of the Lessee
is sequestered, and any such order, judgment or decree of appointment or
sequestration remains in force undismissed, unstayed or unvacated for a
period of thirty (30) days after the date of entry thereof; or
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(i) A petition against the Lessee in a proceeding under the bankruptcy laws
or other insolvency laws (as now or hereafter in effect) is filed, and any
decree or order adjudging the Lessee a bankrupt or insolvent in such
proceeding remains in force undismissed or unstayed for a period of thirty
(30) days after such adjudication or, in case the approval of such petition
by a court of competent jurisdiction is required, the petition as filed or
amended shall be approved by such a court as properly filed and such approval
shall not be withdrawn or the proceeding dismissed within thirty (30) days
thereafter, or if, under the provisions of any law providing for
reorganization or winding-up of corporations which may apply to the Lessee,
any court of competent jurisdiction shall assume jurisdiction, custody or
control of the Lessee or of any substantial part of its property and such
jurisdiction, custody or control remains in force unrelinquished, unstayed or
unterminated for a period of thirty (30) days; or
(j) The Lessee voluntarily suspends all or substantially all of its
commercial airline operations or the franchises, concessions, permits, rights
or privileges required for the conduct of the business and operations of the
Lessee are revoked, cancelled or otherwise terminated or the free and
continued use and exercise thereof is curtailed or prevented, and as a result
thereof the
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preponderant business activity of the Lessee ceases to be that of a
commercial airline; or
(k) Judgment for the payment of money in excess of $100,000 is rendered
against the Lessee and the same shall remain undischarged for a period of
forty-five (45) days during which execution of such judgment shall not be
effectively stayed, or an attachment or other Lien shall be issued against
any of the property of Lessee for an amount in excess of $100,000 and shall
remain undischarged or unbonded for forty-five (45) days.
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ARTICLE 18
REMEDIES
Upon the occurrence of any Event of Default and at any time thereafter so
long as the same shall be continuing, the Lessor may, at its option, declare
this Lease to be in default and at any time thereafter, so long as the Lessee
shall not have remedied all outstanding Events of Default, the Lessor may
exercise one or more of the following remedies with respect to all or any part
of any Aircraft, Airframe or any Engine as the Lessor, in its sole discretion,
shall elect, to the extent available and permitted by applicable law then in
effect:
18.01. Terminate this Lease and demand that the Lessee, and the Lessee
shal1 upon the written demand of the Lessor and at the Lessee's expense,
forthwith return the Aircraft and all Items of Equipment to the Lessor in the
manner and condition required by, and otherwise in accordance with all of the
provisions of, Article 16 hereof as if such Aircraft and Items were being
returned at the end of the Term; or the Lessor, at its option and to the extent
permitted by applicable law, may enter upon the premises where any Airframe, any
Engine or any Item of Equipment is located and take immediate possession of and
remove the same by summary proceedings or otherwise, all without liability
accruing to the Lessor for or by reason of
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such entry or taking of possession whether for the restoration of damage to
property caused by such taking or otherwise.
18.02. Sell or cause to be sold any Airframe, any Engine or any Item of
Equipment at public or private sale, as the Lessor may determine, or otherwise
dispose of, hold use, operate, lease to others or keep idle the Aircraft or any
Item of Equipment as the Lessor in its sole discretion may determine, all free
and clear of any rights of the Lessee.
18.03. Whether or not the Lessor shall have exercised, or shall thereafter
at any time exercise, any of its rights under Section 18.01 or 18.02 above with
respect to the Aircraft or any Item, the Lessor, by written notice to the Lessee
specifying a payment date not earlier than ten (10) days from such written
notice, may demand that the Lessee pay to the Lessor and the Lessee shall pay to
the Lessor, on the payment date specified in such notice, as liquidated damages
for loss of a bargain and not as a penalty (in lieu of the Basic Rent for the
Item due for periods commencing on or after the date specified for payment in
such notice), any unpaid Basic Rent for the Item due for periods prior to the
payment date specified in such notice plus whichever of the following amounts
the Lessor, in its sole discretion, shall specify in such notice: (A) an amount
equal to the excess, if any, of the
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present worth of the aggregate unpaid Rent due under this Lease for such Item
discounted at the rate of seven percent (7%) per annum to the date specified in
said notice over the aggregate fair market rental value (computed as hereafter
in this Article provided) of such Item for the remainder of the Term for such
Item after discounting such fair market rental value to present worth as of the
payment date specified in such notice at the rate of seven percent (7%) per
annum; or (B) an amount equal to the excess, if any, of the Stipulated Loss
Value for such Item computed as of the date specified for payment in such notice
over the fair market sales value (computed as hereafter in this Article
provided) as of the date specified in the notice. The amount specified in said
notice shall bear interest at the Incentive Rate from the payment date specified
in said notice until receipt of payment by the Lessor.
18.04. In the event the Lessor, pursuant to Section 18.02 above, shall
have sold or caused to have sold, any Item, the Lessor in lieu of exercising its
rights under Section 18.03 above with respect to such Item, may, if it shall so
elect, demand that the Lessee pay the Lessor and the Lessee shall pay to the
Lessor, as liquidated damages for loss of a bargain and not as a penalty (in
lieu of the Basic Rent for such Item due after such sale occurs), any unpaid
Basic Rent for such Item due for periods up to the time of sale plus the amount
by which the Stipulated Loss Value of such Item computed as of the date of such
sale exceeds the net cash proceeds (after deduction of all fees and expenses) of
such sale,
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together with interest at the Incentive Rate on the sum of such excess and such
unpaid Rent from date of sale to the date such payment is received by the
Lessor.
18.05. Proceed by appropriate court action or actions, either at law or in
equity, to enforce performance by the Lessee of the applicable covenants of this
Lease and to recover damages for the breach thereof, or to rescind this Lease as
to any Item.
18.06. In addition, the Lessee shall be liable, except as otherwise
provided above, for any and all unpaid Rent due hereunder before or during the
exercise of any of the foregoing remedies and for all legal fees and other costs
and expenses incurred by reason of the occurrence of any Event of Default or the
exercise of the Lessor's remedies with respect thereto, including without
limitation all costs and expenses incurred in connection with the return of any
Item in accordance with the terms of Article 16 hereof or in placing such Item
in the condition and with airworthiness certificates as required by said
Article.
18.07. For the purpose of Section 18.03 above, the "fair market rental
value" or the "fair market sales value" of any Item shall be as specified in an
appraisal by a recognized independent aircraft appraiser, chosen by the Lessor,
who shall determine such value(s) on the basis of the lesser of the
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actual location and condition of the Item or the location and condition required
upon the return thereof pursuant to this Lease. At any sale of any Item pursuant
to this Article 18, Lessor, or any assignee, successor or affiliate of Lessor,
may bid for and purchase such property.
18.08. Except as otherwise expressly provided above, no remedy referred to
in this Article is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available to the
Lessor at law or in equity; and the exercise or beginning of exercise by the
Lessor of any one or more of such remedies shall not preclude the simultaneous
or later exercise by the Lessor of any or all of such other remedies. No express
or implied waiver by the Lessor of any Event of Default shall in any way be, or
be construed to be, a waiver of any future or further Event of Default. To the
extent permitted by applicable law, Lessee hereby waives any and all rights to
notice and to a judicial hearing with respect to the repossession of any Item by
the Lessor in the event of a Default by the Lessee and agrees that, except as
provided in this Article 18, any financing profit or savings accruing to the
Lessor by virtue of the Lessee's Default and subsequent sale, reletting or award
shall in no way reduce, offset or mitigate the damages for which the Lessee is
liable hereunder.
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18.09. To the extent consistent with the provisions of 11 U.S.C. Section
1110 or any corresponding provisions of subsequent law, it is expressly agreed
and provided that the title of the Lessor to the Aircraft and any right of the
Lessor to take possession of the Aircraft in compliance with the provisions
hereof shall not be hindered by the provisions of Chapter 11 or corresponding
provisions of Title 11 U.S.C. as amended from time to time.
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ARTICLE 19
MISCELLANEOUS
19.01. CONSTRUCTION AND APPLICABLE LAW. Any provision of this Lease which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. No term or
provision of this Lease may be changed, waived, discharged or terminated orally,
but only by a written instrument signed by the party against which the
enforcement of the change, waiver, discharge or termination is sought. This
Lease shall constitute an agreement of lease, and nothing herein shall be
construed as conveying to the Lessee any right, title or interest in any Item of
Equipment except as a lessee only. The captions in this Lease are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof. This Lease is being delivered in the State of New York and
shall in all respects be governed by, and construed in accordance with, the laws
of the State of New York, including all matters of construction, validity and
performance. This Lease shall be effective for all purposes as of the date first
above written.
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19.02. NOTICES. All notices provided for herein shall be in writing and
shall be deemed to have been given (unless otherwise required by the specific
provisions hereof in respect of any matter) when delivered personally or after
being deposited in the United States mail, certified (return receipt requested),
postage prepaid, addressed as follows and received, as evidenced by the
signature of the addressee on the return receipt therefor:
If to the Lessee: Chautauqua Airlines, Inc.
Road 1 Airport Drive
Jamestown, New York 14701
Attn: President
If to the Lessor: McDonnell Douglas Finance Corporation
340 Golden Shore
Long Beach, CA 90802
Attn: Vice President-Domestic
Airline Financing
or to any party at such other address as the party may designate by notice duly
given in accordance with this Section.
19.03. LESSOR'S RIGHT TO PERFORM FOR LESSEE. If the Lessee fails to make
any payment of Rent required to be made by it hereunder or fails to perform or
comply with any of its
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agreements contained herein or in related documents, the Lessor may itself make
such payment or perform or comply with such agreement, and the amount of such
payment and the amount of the reasonable expenses of the Lessor incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, together with interest thereon at the Incentive
Rate, shall be deemed Supplemental Rent, payable by the Lessee upon demand.
19.04 COUNTERPARTS. This Lease may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
19.05. QUIET ENJOYMENT. The Lessor covenants that if, and as long as, the
Lessee keeps and performs each and every covenant and agreement to be performed
or observed by it hereunder, the Lessee shall quietly enjoy the Aircraft without
hindrance or disturbance by the Lessor or by any other person lawfully claiming
the Aircraft through the Lessor.
19.06. LEGAL FEES AND OTHER EXPENSES. The Lessee shall pay or reimburse the
Lessor for all out-of-pocket expenses incurred by the Lessor, including but not
limited to, legal expenses, collection costs and reasonable attorneys' fees and
accounting fees incurred by or on behalf of the Lessor in connection with (A)
Section 15 hereof, or (B) any Event of
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Default or the exercise of the Lessor's remedies with respect thereto, including
all costs and expenses incurred in connection with the return of an Airframe. It
is understood and agreed that in any litigated action, proceeding, controversy
or dispute of any kind whatever in connection with the enforcement of rights
under this Lease, the prevailing party shall be entitled to recover its
expenses, including reasonable attorneys' fees, from the other party.
19.07 ASSIGNMENT BY LESSOR. (a) Lessee acknowledges and agrees that Lessor
shall have the absolute right to transfer or assign to any person, firm,
corporation or other entity any or all of Lessor's rights, obligations, benefits
and interests under this Lease, including, without limitation, the right to
receive Rent or any other payment due under this Lease, the right to transfer or
assign title to any Item or to transfer or assign the right to purchase any Item
and the right to make all waivers and agreements, to give all notices, consents
and releases, to take all action upon the occurrence of an Event of Default, or
to do any and all other things which Lessor is or may become entitled to do
under this Lease. Lessee acknowledges that, if Lessor should sell or transfer to
a third party all of Lessor's interest under this Lease and in the Aircraft,
Lessor shall thereupon be relieved of all of its obligations hereunder and
Lessor's transferee shall succeed to all of Lessor's rights, interests and
obligations under this
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Lease as though Lessor's transferee had been the initial lessor hereunder.
(b) Without limiting the generality of paragraph (a), Lessee acknowledges
and agrees that the terms and conditions of this Lease have been agreed to by
Lessor in anticipation of its being able to assign its rights under and
interests in this Lease and its rights in the Aircraft and/or its being able to
grant a security interest in all or any of its rights and interest under this
Lease and in the Aircraft or any Item to one or more lenders, to an agent or
trustee representing such lenders, or to any other party having an interest in
any Item or participation in the transaction which is the subject of this Lease,
any or all of which may rely on and shall he entitled to the benefit of the
provisions of this Section 19.07(b). Lessee shall, upon the reasonable written
instruction of Lessor: (a) recognize any such assignment, (b) accept the
directions or demands of such assignee (if such directions or demands would be
permissible from Lessor under the terms of this Lease) in place of those of
Lessor, (c) surrender any leased property only to such assignee, (d) pay all
Rent payable hereunder and do any and all things required of Lessee hereunder,
and not terminate this Lease, notwithstanding any default by Lessor or the
existence of any other liability or obligation of any kind or character on the
part of Lessor to Lessee whether or not arising hereunder, (e) not require any
assignee of this Lease to
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perform any duty, covenant or condition required to be performed by Lessor under
the terms of this Lease unless such assignee assumes all Lessor's interest in
the Aircraft and this Lease, all rights of Lessee in any such connection
aforesaid being hereby waived as to any and all such assignees (but not waived
as to Lessor), and (f) execute any documents which Lessor may reasonably request
in order to effectuate the foregoing.
19.08. SURVIVAL. The representations, warranties, indemnities and
agreements of the Lessee provided for in this Lease, and the Lessee's
obligations under any and all provisions thereof, shall survive the expiration
or other termination of this Lease to the extent required for full performance
and satisfaction hereof.
19.09. SUCCESSORS AND ASSIGNS. This Lease shall be binding on and shall
inure to the benefit of Lessee, Lessee's permitted successors and assigns,
Lessor and Lessor's successors and assigns.
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ARTICLE 20
PURCHASE OPTION
20.1. PURCHASE OPTION. Provided no Event of Default shall have occurred and
be continuing hereunder, Lessee, by irrevocable written notice delivered to
Lessor not later than 180 days prior to the end of the Term, may, at the end of
the Term, purchase the Aircraft for a purchase price in cash equal to the then
fair market sales value of the Aircraft determined as hereinafter provided;
provided that in no event shall the purchase price exceed fifty three percent
(53%) of Lessor's Cost.
The then fair market sales value for a purchase shall be determined by
agreement between Lessor and Lessee, such determination to be based upon the
assumption that the Aircraft is in at least as good a condition as required by
the return conditions in Article 16 hereof. In the event Lessor and Lessee have
not agreed on the fair market sales value of the Aircraft prior to 90 days
before the expiration date of this Lease, the Lessor shall choose a recognized,
independent aircraft appraisal company which it shall engage to determine the
fair market sales value of the Aircraft, such appraisal to be binding on both
parties and the cost of which is to be borne by Lessee.
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ARTICLE 21
CHARACTERIZATION AS LEASE AND TAX INDEMNITY
It is the intent of the parties that this Lease be a true lease and that
Lessor shall at all times be considered the owner of the Items for purposes of
all federal, state and local income or franchise taxes measured by net income,
and that this Lease conveys no right, title or interest in the Items to Lessee,
except as lessee. Lessee represents, warrants and covenants that neither it nor
any person controlled by it, in control of it, or under common control with it,
directly or indirectly, will at any time take any action or file any return or
other document inconsistent with the foregoing and that each of such persons
will file such returns, take such actions and execute such documents as may be
reasonable and necessary to facilitate accomplishment of the intent hereof.
21.01. TAX ASSUMPTIONS. The Lessor and the Lessee acknowledge that this
Lease has been entered into on the assumption that (i) for Federal income tax
purposes the Lease will be treated as a "true lease", (ii) for Federal income
tax purposes Lessor will be allowed to deduct as accelerated cost recovery
deductions under Section 168(b) of the Code commencing on the
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Delivery Date, with respect to each Item of Equipment, the Lessor's Cost over
seven years based on the 200 percent declining balance method, switching to the
straight-line method for the first taxable year of the Lessor for which using
the straight-line method with respect to the adjusted basis of each Item of
Equipment at the beginning of such year will yield a higher allowance and
utilizing a salvage value of zero percent (0%); (iii) for Federal income tax
purposes all items of income and deduction relating to the Items of Equipment
will be treated as being from sources within the United States, and (iv)
Lessee's payments of Basic Rent, with respect to each Item of Equipment, will
constitute income to the Lessor, for Tax purposes, in the amounts and for the
respective periods determined on the assumption that such amounts will be
includable in Lessor's income, for Tax purposes, as they accrue under the Lease
and that such amounts will be the only income to be realized by the Lessor, for
Tax Purposes, from or with respect to each Item of Equipment or this Lease
Agreement, except for indemnity payments made to Lessor pursuant to this Article
and Articles 10 and 13 hereof. Such tax assumptions are hereinafter referred to
as the "Tax Benefits".
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21.02. TAX INDEMNITY. If for any taxable year of Lessor during which the
Lease is in effect Lessor shall lose (upon audit, by being unable to claim,
through recapture, or by not getting the benefit of, or otherwise) as a result
of Lessee's action or failure to act, excluding actions or failures to act
expressly required hereunder, all or any portion of any of the Tax Benefits, the
Lessee shall pay to Lessor an amount which, after deduction of all taxes
required to be paid (or which would have been required to be paid by Lessor had
Lessor had sufficient gross income within the meaning of Section 61 of the Code,
and the applicable state and local law, actually to pay tax) by Lessor in
respect of the receipt of such sum under the laws of any Federal, state or local
government or taxing authority in the United States (after giving credit for any
savings in respect to any such taxes by reason of deductions, credits or
allowances in respect of the payment or accrual of the amount indemnified
against), shall be equal to the sum of any additional Federal, state or local
income taxes payable by Lessor as a result of the loss of, such Tax Benefits (or
which would have been required to be paid by Lessor for such loss of Tax
Benefits had Lessor had sufficient gross income within the meaning of Section 61
of the Code, and the applicable state and local law, actually to pay tax or to
derive the benefit of such credit or deduction), plus the amount of any
interest, additions to tax (including, without limitation, an addition to tax by
reason of any underpayments of any estimated taxes), fines or penalties which
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are payable by Lessor in connection with the loss of such Tax Benefits,
PROVIDED that the Lessee shall not be required to make any of the foregoing
indemnity payments to the extent the loss of the Tax Benefits is the result of:
(a) any event whereby Lessee is required by the terms of the Lease to pay, and
shall have paid in full, the Stipulated Loss Value for the Item of Equipment
with respect to which the loss of Tax Benefits arose; (b) Lessor's voluntarily
or involuntarily transferring legal title to all or any part of the interest in
such Item of Equipment unless such transfer occurs by reason of exercise of
Lessor's remedies under the Lease upon an Event of Default; (c) the failure of
Lessor to have sufficient liability for tax against which to apply any Tax
Benefits which may be taken as a credit or to have sufficient gross income
against which to apply any Tax Benefit which may be taken as a deduction (but
only if and to the extent that such credit or deduction would not be lost if
Lessor had sufficient liability for tax or sufficient gross income); (d) the
failure of Lessor to claim any Tax Benefit in its income tax returns for the
appropriate year or to follow proper procedure in claiming any Tax Benefit in
such tax returns for such year, if such failure to claim or follow proper
procedure shall preclude Lessor from claiming such Tax Benefit unless (i) such
failure is due to the failure of Lessee to provide Lessor in a timely manner
with such information as was reasonably requested by Lessor pursuant to this
Lease, or (ii) in the opinion of independent tax
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counsel selected by Lessor, no substantial authority for such claim exists
or (iii) the matter in question is of a continuing nature and such matter
(although not in respect of the particular taxable year) has previously been
decided adversely to Lessor pursuant to the contest provisions of this Section;
(e) the failure of Lessor to take timely action in contesting a claim made by
any taxing authority with respect to the disallowance of any Tax Benefits if
such failure shall preclude the right of Lessor to contest such claim and if
such failure was not caused by Lessee's failure to request action by the Lessor
after receipt of notice from the Lessor or to otherwise comply with the
obligations under the contest provisions of this Section; (f) any act (whether
voluntary or involuntary), omission or misrepresentation of Lessor other than
any action or omission contemplated in the Lease Agreement or any related
agreements or otherwise taken by Lessor in the exercise of any. remedies or the
enforcement of any rights against Lessee under any of such agreements; (g) any
amendment to the laws of any Federal, state or local government or taxing
authority, which amendment is enacted after March 1, 1988; or (h) a
determination by any Federal, state or local government or taxing authority that
the Lease shall not be treated as a "true lease" unless such determination is a
result of Lessee's action or failure to act (excluding actions or failures to
act expressly required by this Lease).
Except as otherwise provided in the immediately following paragraph, the
liability of the Lessee to make any indemnity
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payments hereunder shall become fixed at the time the Lessor makes payment of
the tax attributable to the portion of the Tax Benefits lost, or if the Lessor
is not required to make payment of tax with respect to the portion of the Tax
Benefits lost, the date on which the Lessor files its tax return for the taxable
year in which such loss occurs, and shall he due and payable within 15 days
after receipt by Lessee of written notice from Lessor as to the fixing of such
liability. Lessee shall pay interest at the Incentive Rate on any indemnity
payment not made when due.
21.03. CONTEST.
(A) In the event a claim shall be made by the Internal Revenue Service
which, if successful, would result in a loss for which Lessee would have
liability to Lessor pursuant to this Article 21 of the Lease, Lessor hereby
agrees to take such action, in good faith, in connection with contesting such
claim as the Lessee shall reasonably request in writing, provided, that: (i)
within thirty (30) days after notice by Lessor to the Lessee of such claim the
Lessee shall have requested that such claim be contested; (ii) Lessor at its
sole option, may forego any and all administrative appeals, proceedings,
hearings and conferences with the relevant taxing authority in respect to such
claim and may, at its sole option, either pay the tax claimed and sue for a
refund in the appropriate forum selected by Lessor or contest such claim in the
appropriate forum selected by Lessor; (iii) within thirty (30) days after notice
by Lessor to Lessee of such claim, the Lessee shall have
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furnished Lessor with an opinion of independent tax counsel chosen by the Lessee
and acceptable to Lessor, both as to counsel and substance, to the effect that
Lessor is more likely than not to prevail in contesting such claim; and (iv) the
Lessee shall have indemnified Lessor in a manner satisfactory to Lessor for any
cost, expenses or liability, which Lessor may incur as a result of contesting
such claim, and the Lessee shall agree to reimburse Lessor on demand, for all
costs, expenses and liability which Lessor may incur in contesting the claim,
and to pay all reasonable costs and expenses which Lessor may incur in
contesting the claim. These costs and expenses shall include, without
limitation, (a) reasonable attorneys' and accountants' fees and disbursements,
and (b) the amount of any interest, penalties or additions to tax indemnified
hereunder that may ultimately be payable as a result of contesting such claim.
In the event that at any time Lessor shall pay the tax claimed and then
seek a refund, the Lessee shall pay to Lessor (as a "prior payment") the amount
of such tax and interest, additions to tax and penalties thereon, if any, but
not in excess of the amount which the Lessee would be obligated to pay in
respect of the related Loss under this Article of the Lease. Upon Final
Determination of the liabilities of Lessor, or the receipt of a refund by
Lessor, Lessor shall offset the amount of such prior payment against the full
amount due, if any, pursuant to the provisions of this Article and either (i)
the Lessee shall pay to Lessor within 15 days after notice
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thereof, any excess of such full amount due, if any, over such prior payment, or
(ii) Lessor shall repay to the Lessee within 15 days after the late of a
receipt of such refund or notice of such Final Determination, any excess of such
prior payment over such full amount due. Any interest received by Lessor in
connection with any refund which is allocable to the indemnified taxes paid by
Lessor in respect of which the Lessee had made a prior payment shall be for the
account of the Lessee.
(B) In the case of any such claim, Lessor agrees to notify the Lessee
promptly in writing of such claim, agrees not to make payment of the tax or
other liability claimed for at least thirty (30) days after the giving of such
notice (unless specifically required to do so at an earlier date by the Internal
Revenue Service), and agrees to cooperate with the Lessee in good faith in order
that such claim may be contested effectively. The Lessee and its counsel shall
maintain confidentiality with respect to all such information insofar as is
possible, consistent with the conduct of a contest hereunder.
(C) Lessor shall not enter into a settlement or other compromise with
respect to, or otherwise concede, any claim without the written consent of
Lessee, which consent shall not be unreasonably withheld, unless Lessor waives
its right to be indemnified with respect to such claim (but not with respect to
any future claims) under this Article of the Lease. Lessee shall not be
considered to have unreasonably withheld such consent if such consent shall be
withheld as a result of Lessee's reasonable evaluation of the merits of the
basis for
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contesting such claim and Lessee shall not be required to consider any issue or
dispute not directly related to such claim.
(D) If Lessee requests Lessor to contest a claim and otherwise complies
with its obligations under this Section 21.03, it shall have no obligation to
pay any indemnity under this Article of the Lease resulting from such claim
until a Final Determination occurs regarding the liability of Lessor in respect
of the claim. Lessee's obligation to pay the indemnity shall become fixed upon
such Final Determination and unless otherwise provided in this Section 21.03
shall be payable within 15 days after receipt by Lessee of written notice from
Lessor as to the occurrence of a Final Determination. In all other cases, the
liability of Lessee shall become fixed and payable as provided in Section 21.02
of the Lease:
(E) For purposes of this Section 21.03, "Final Determination" shall mean a
decision of a court of original jurisdiction with respect to such claim,
(provided that the time for filing an appeal of such decision has expired) or
other disposition of such claim in the manner contemplated herein.
21.04. SURVIVAL. The indemnification provided herein shall survive the
assignment, expiration or other termination of this Lease.
21.05. CONSOLIDATED RETURN. For purposes of this Article 21, the term
"Lessor" shall mean and include the affiliated group of corporations and each
member thereof,
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within the meaning of section 1504 of the Code, of which Lessor is a member, if
such group is filing a consolidated United States Federal income tax return, and
it shall also mean any consolidated or combined group of corporations of which
Lessor is a member which is treated as such for state franchise tax purposes.
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ARTICLE 22
TRUE LEASE UNDER FEDERAL AVIATION ACT
It is the intent of the parties to this Lease that it will be a true lease
and not a "conditional sale" as defined in 49 U.S.C. Section 1301 and that the
Lessor shall at all times be considered to be the owner of the Aircraft which
are the subject of this Lease for the purposes of 49 U.S.C. Section 1401 and for
all Federal, state, city and local income taxes or for franchise taxes measured
by net income, and that this Lease conveys to the Lessee no right, title or
interest in the Aircraft except as a lessee.
ARTICLE 23
TRUTH IN LEASING
Lessee agrees to carry a copy of this Lease in the Aircraft at all times.
THE AIRCRAFT, AS EQUIPMENT, BECAME SUBJECT TO THE MAINTENANCE REQUIREMENTS
OF FEDERAL AVIATION REGULATION PART 135 UPON THE REGISTRATION OF THE AIRCRAFT
WITH THE FAA. THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FEDERAL
AVIATION REGULATION PART 135, OR, IF LATER APPLICABLE PART 121. UPON EXECUTION
OF THIS LEASE, THE LESSEE WILL BE RESPONSIBLE DURING THE TERM OF THIS LEASE FOR
THE OPERATIONAL CONTROL OF THE AIRCRAFT IDENTIFIED AND TO BE OPERATED HEREUNDER.
<Page>
AN EXPLANATION OF THE FACTORS BEARING ON OPERATING CONTROL AND PERTINENT
FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
THE LESSEE CERTIFIES THAT IT IS RESPONSIBLE FOR OPERATING CONTROL OF THE
AIRCRAFT AND THAT IT UNDERSTANDS IT IS RESPONSIBLE FOR COMPLIANCE WITH
APPLICABLE FEDERAL AVIATION REGULATIONS.
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this Lease
to be duly executed by their authorized officers as of the day and year first
above written.
MCDONNELL DOUGLAS FINANCE CORPORATION,
as Lessor
By: /s/ [ILLEGIBLE]
----------------------------------
Its: Executive Vice President
----------------------------------
CHAUTAUQUA AIRLINES, INC.,
as Lessee
By: /s/ [ILLEGIBLE]
----------------------------------
Its: President
----------------------------------
<Page>
EXHIBIT A
LEASE SUPPLEMENT NO.
THIS LEASE SUPPLEMENT NO._______, dated as of __________, 1988,
between McDonnell Douglas Finance Corporation ("Lessor") and Chautauqua
Airlines, Inc. ("Lessee");
W I T N E S S I T H
WHEREAS, Lessor and Lessee have heretofore entered into that certain Lease
Agreement dated as of August 15, 1988 (herein called the, "Lease" and the terms
defined therein being herein used with the same meaning), which Lease provides
for the execution and delivery from time to time of Lease Supplements each
substantially in the form hereof for the purpose of leasing the Aircraft under
the Lease as and when delivered by the Lessor to the Lessee in accordance with
the terms thereof;
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, and pursuant to Article 2 of the Lease, the Lessor and
the Lessee hereby agree as follows:
1. The Lessor hereby delivers and leases to the Lessee, and the Lessee
hereby accepts and leases from the Lessor, under the Lease Agreement, as herein
supplemented, the following:
(i) Airframe:____________________________________________________________
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(ii) Engines: General Electric model CT7-5A2, manufacturer's serial nos.
______________and ____________ (each of which engines has 750 or more rated
takenoff horsepower);
(iii) Propellers: Dowty Rotol model (c)R354/4-123-F/13, manufacturer's
serial nos. ________ and ________ (each of which Propellers is capable of
absorbing 750 or more rated takeoff shaft horsepower); and
(iv) Such other further and additional equipment as may be specified in any
attached invoices.
All the foregoing is hereinafter referred to as the "Delivered Equipment."
1
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2. The Delivery Date of the Delivered Equipment is the date of this Lease
supplement set forth in the opening paragraph hereof.
3. Equipment Cost for each of the delivered Aircraft (including Airframe,
Engines, and Propellers) is $ ________
4. Term for the Delivered Equipment shall commence on the Delivery Date
therefor and shall conclude on the close of business on September 30, 2002,
subject to any early termination provisions invoked in accordance with the
Lease.
5. The Lessee hereby confirms its agreement to pay the Lessor Interim Rent,
Basic Rent and Supplemental Rent for the Delivered Equipment, throughout the
Term therefor in accordance with the Lease. The Interim Rent for the Delivered
Equipment shall be payable on October 1, 1988 in an amount equal to $___________
The Interim Rent shall be allocated, for Federal income tax purposes, to the
monthly periods immediately before the date it is due. The Basic Rent for the
Delivered Equipment shall be payable in 168 consecutive monthly installments,
payable in advance, the first installment of which is due and payable October 1,
1988, and subsequent installments shall be payable on the first day of each
month throughout the Term. Each such installment of Basic Rent shall be in an
amount equal to $ __________ Each installment of Basic Rent shall be allocated,
for Federal income tax. purposes, to the monthly period immediately after the
date it is due.
All payments of Rent under the Lease shall be paid to Lessor by wire
transfer of immediately available funds on or before the due dates therefor to
the account of McDonnell Douglas Finance Corporation, Account No. 001-002-181 at
Security Pacific National Bank, 333 South Hope Street, Los Angeles, CA 90071.
6. The Lessee hereby confirms to the Lessor that it will, as soon as
practicable, mark the Delivered Equipment as showing all interests thereto in
accordance with the terms of the Lease and that the Lessee has accepted the
Delivered Equipment for all purposes hereof and of the Lease, including its
being airworthy, in accordance with specifications, in good working order and
repair and without defect in title, condition, design, operation or fitness for
use, whether or not discoverable by Lessee on the date hereof, and free and
clear of all Liens, except for those contemplated by the Lease, provided,
however, that nothing contained herein or in the Lease shall in any way diminish
or otherwise affect any right the Lessee or the Lessor may have with respect to
the Delivered Equipment against the manufacturer thereof, or any subcontractor
or supplier of the manufacturer thereof.
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7. This Lease Supplement shall in all respect' be governed by, and
construed in accordance with, the laws of the State of New York, including all
matters of construction, validity and performance.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease
Supplement to be duly executed by their authorized officers as of the day and
year first above written.
McDonnell Douglas Finance Corporation,
as Lessor
By: ----------------------------------
Its: ---------------------------------
Chautauqua Airlines, Inc.
as-Lessee
By: ----------------------------------
Its: ---------------------------------
3
<Page>
EXHIBIT B1
STIPULATED LOSS VALUE
(FOR ALL ITEMS OF EQUIPMENT COVERED BY LEASE SUPPLEMENT NO. __________ )
BEFORE S.L.V. AS A BEFORE S.L.V. AS A BEFORE S.L.V. AS A
PAYMENT PERCENT OF PAYMENT PERCENT OF PAYMENT PERCENT OF
NUMBER ORIGINAL COST NUMBER ORIGINAL COST NUMBER ORIGINAL COST
- --------------------------------------------------------------------------------
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EXHIBIT B2
STIPULATED LOSS VALUE
(FOR ALL ITEMS OF EQUIPMENT COVERED BY LEASE SUPPLEMENT NO __________ )
BEFORE S.L.V. AS A BEFORE S.L.V. AS A BEFORE S.L.V. AS A
PAYMENT PERCENT OF PAYMENT PERCENT OF PAYMENT PERCENT OF
NUMBER ORIGINAL COST NUMBER ORIGINAL COST NUMBER ORIGINAL COST
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CERTIFICATE OF OFFICER
The undersigned authorized officer of McDonnell Douglas Finance Corporation
("MDFC") hereby states to Chautauqua Airlines, Inc. ("Chautauqua") the
following:
1. MDFC requests that Chautauqua execute the Purchase Agreement Assignment
dated August 22, 1988 in connection with Aircraft N125CH.
2. MDFC guarantees that all of the rights that Chautauqua is assigning to
V.A.G pursuant to the Purchase Agreement Assignment other than title to
and ownership of the aircraft have been returned to MDFC by V.A.G.
through the Lease Agreement from V.A.G to MDFC and will be returned to
Chautauqua pursuant to the Lease Agreement dated August 15, 1988 between
MDFC and Chautauqua provided that no Default or Event of Default has
occurred and is continuing under such Lease Agreement.
3. MDFC will indemnify Chautauqua against any taxes or other reasonable out
of pocket costs incurred by Chautauqua as a result of its assignment of
the Saab Purchase Agreement to V.A.G which would not have been payable
to Chautauqua pursuant to the Lease Agreement dated August 15, 1988
between MDFC and Chautauqua.
IN WITNESS WHEREOF, I have hereunto set my name this 25th day of August
1988.
MCDONNELL DOUGLAS FINANCE CORPORATION
By: /s/ [ILLEGIBLE]
-----------------------------------
V.P.
Title: --------------------------------
CERT.JSW